Should you pass away, life insurance helps to protect your loved ones and continue to provide for them after your death by offering a lump sum payment to any beneficiaries. While it is hard to estimate how much life insurance you need to the exact penny, a relatively accurate estimate can be achieved. When it comes to determining how much life insurance you should purchase, there are three main methods that we’ll outline below:
- Multiply Your Income By 10: With this method, you take your current salary – say $100,000 – and multiply it by 10 to reach the figure of life insurance that you need to purchase, which, in this case, is $1,000.000. While this method is fast and convenient, it fails to take into account potential raises in current debt obligations and future financial needs such as college funds for your kids.
- Multiply Your Income By 10 AND Add $100,000 Per Child: Since the first method does not consider college costs, the second option does and allows for extra flexibility should the need arise. However, like the first method, it does not consider any other life insurance policies or your current financial situation.
- Use the DIME Method: The DIME method stands for Debt, Income, Mortgage, and Education. Start by adding all your debts outside of your mortgage, multiply your current income by how many years of financial support are needed, calculate the amount needed to pay off your mortgage, and estimate the cost of school for your children. The sum of the DIME method provides a holistic figure pointing toward how much life insurance is needed.
At Elliot and Associates Insurance in Opelika, AL, we’ll walk you through your life insurance options and help you choose a term or whole life policy that best meets your needs.