## Tips for Buying Life Insurance #1

## Tip 1 Determining How Much

How much life insurance do you need? If you have no dependents, the amount of insurance you need may not exceed the cost of a funeral. If you do have a spouse, children a family or other people who depend on your contributions, you may need much more.

Even if you don’t work outside the home, your loss may severely impact your family’s financial health. The typical stay-at-home parent provides services that save the family tens of thousands of dollars each year. Unless these services don’t need to be replaced, they probably will need to be paid for if the stay-at-home parent dies before the children become adults.

If your contribution to the family includes the money you are making, obviously the loss of your income would have an impact as well. However, financial plans that do not take into consideration the value of child care is lacking for any family with young children.

The formula for determining how much coverage you need is easier to state and understand than it is to execute or estimate. You need to determine the financial impact of the loss on an annual basis. Then determine how many years the impact will last. Then determine how much coverage you will need to generate that income each year. Then you need multiply that amount by an estimated inflation factor.

Here is an example: Mr. Jones takes home $80,000 a year. He provides the benefits for the family also. You can deduct from that $80,000 any amount that the family saves unless you want to maintain that amount of savings. You can deduct the amount that is spent on Mr. Jones for food, clothing, transportation, etc.

You now need to determine how many years you will need to replace Mr. Jones’ income. This could be the number of years until his youngest child graduates from school.

Then you need to determine how much money would be necessary to generate that amount of money for that number of years. You could simply multiply the number of years by the amount of money or you could factor in the interest that the corpus could earn.

Factoring in inflation is guess work, but some attempt should be made at guessing. You probably couldnâ€™t’ live on the amount of money you made ten years ago. Your family may not be taken care of properly if their income stays flat for the next ten years.