When you're starting out - new career, new location, new relationships - you probably get lots of advice about planning for your future. Sure, you're fully engaged in budgeting your income and thinking about lifestyle priorities. Still, it's a good idea to start working with a personal financial advisor to develop your long-term financial plan. That comprehensive plan will include, at the least, savings and investment, an emergency fund, debt elimination (student loans), retirement, and income protection (life insurance).
The main reason for you to buy life insurance is to make sure that your family will avoid drastic changes in lifestyle in the event of your death. Insurance needs differ at different times in life and are based on the needs of your dependent family members.
Will My Life Insurance Needs Change Over Time?
- When your children are young, you will need more insurance than when they are older, because they will be dependents for a longer time.
- If you and your spouse both earn for the family, you should both be insured in proportion to your incomes.
- If you have a spouse your children are adults, or you have no children, you can choose to have less coverage. Most individuals in this situation maintain enough insurance to provide for a spouse, to cover their burial expenses, and to settle any accumulated debts.
- If you don't have children or a spouse, you can get by with just enough insurance to cover your burial expenses.
How Much Life Insurance Should I Have?
To determine how much insurance you need, you will need to review your current household expenses, debts, assets, and streams of income. Ideally, the amount of money that you want to leave behind for your dependents should allow them to:
- maintain their current standard of living, and
- reinvest another lump sum to ensure that they will be well off in the future.
When attempting to calculate the amount of money that you need to leave behind, be thorough. If you underestimate, your family may not receive the help that they need; and if you overestimate, you will be spending more than necessary in insurance premiums. You can use a life insurance calculator to get an estimate. Your accountant and personal financial advisor are the best sources of expertise and advice to help with this.
Charles P Myrick CPA offers tax preparation for individuals using a process that combines smart, personalized planning with annual tax preparation and filing. Our job is to help you know about all the available tax opportunities that meet your individual needs and circumstances. We work closely with tax lawyers, and investment advisors to ensure that all the details are legally sound, technically accurate, and working to your maximum benefit. Contact us to learn more: (202) 789-8898