There was a time when we were born, lived and passed away living in the same area. We rarely went on holiday and often stayed in the same job for decades. Today, there's been something of a revolution. Now not only do we routinely get on an airplane for holidays in distant places, we are also prepared to move our homes around to find work. In part this is because of the continuing high rates of unemployment and many employers only offering short-term contracts. But it also reflects a change in the stability of families. More people no longer feel obliged to marry. Many more who do get married, now feel able to get divorced. This breaks down the roots we used to have in the local community and increases our willingness to move.
All this introduces more uncertainty into the calculation of the amount of insurance to buy. Before divorce became common, marrying during your twenties meant still being married decades later. You could predict a surviving spouse and children. Now there could be a number of ex-partners and a possible number of children, some from your own relationships and others you have acquired when entering new relationships. This changes your sense of duty. When you were expecting to provide for your own family, there were very specific targets to work through. For example, providing enough money to pay your children's way through college should your income be lost. When you might have been a temporary parent to another's children, you may not feel equally motivated.
So it's better to start with quite short-term expectations when planning how much cover to buy. Make a list of your current liabilities. The first step will be a lump sum to pay off everything you owe. Potentially this will include the mortgage, but check whether your life is already insured as part of the borrowing transaction. You should also estimate what expenses might arise as a result of your departure. If you already have assets, you might need to get professional advice to consider questions of estate tax. Writing a will is a desirable part of all this planning.
Now look at the amount you contribute to the household through your pay and other sources of income. This needs to be replaced for a period after you have gone. Most advisors suggest providing a lump sum equal to between five and seven years of your pay. Then add in provision for any large amounts you think they will have to pay - back to that college fund. Now you need a way of inflation-proofing this amount. Most of the best advisors and some of the websites have a calculator to help you approximate how much to add. Remember if you are proposing to buy whole life insurance, there will be an investment element to keep your policy value steadily increasing. If you circumstances do change, having a cash value to draw on in later life is going to help you.
Although there's no reason why you should not do these calculations yourself, getting independent financial advice is always an advantage. Talking through issues with a knowledgeable expert helps you make the best decision. In this, it's better to pay for the advice rather than buy a policy through the advisor.
About the author:
To see what David Mayer has written on different topics visit http://www.lifeinsurabc.com/how-much-should-you-buy.html and find him there. David Mayer has dedicated his work to helping people understand better the subject he writes about.
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Article tags: insurance
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