Determining Your Familys Quality Of Life After You Die

(Life insurance is commonly thought of as a way to financially protect your family if you unexpectedly die.)

This is of course true, but many people believe that you take out enough coverage so that your family can survive without you. But what is surviving? Just enough to buy the groceries? And have you taken inflation into account?

You need to determine the appropriate amount of coverage that will leave your family financially comfortable in the future while not putting too much of a strain on your bank account now.

The article, "Covering all bases," published October 22, 2006 in The San Diego Union-Tribune and written by Hillary Chura, explains the best way to decide on how much coverage you should get for your life insurance policy.

"If you died today, would your family be destitute in a few years, comfortable, or toasting your good planning as they vacationed on the Riviera?"

Obviously this answer depends on financial investments and how much life insurance coverage you obtain.

But figuring out how much life insurance you need is not as easy as it originally sounds. You have probably heard from different sources that you should apply for four or five times your current annual salary. This basic formula can give you an approximate idea but when you are dealing with your financial future, you want to do a little more legwork to be certain your family will have no financial hardships when you die.

"Overinsure, and good money is wasted on the unlikely event of a premature death. Underinsure, and a family may have to lower its lifestyle at an already traumatic time, a newly single stay-at-home parent might have to return to work, a house might have to be sold in a bad market, or offspring attending college might have to drop out."

The basic standard of how much insurance you should have, held by many life insurance agents seems high at 10 times your annual salary.

Again, this is just a ballpark figure.

However, there are now life insurance calculators that you can access over the Internet that will provide more specific estimates depending on a variety of financial factors that you provide.

"The goal is for people to withdraw less annually than their investment portfolio returns. This allows for inflation if the money is to support them for long periods. Many advisers recommend an annual withdrawal of 5 percent or less, which would be $50,000 in annual taxable income on $1 million."

"'And 5 percent may even be on the high side if you have to pay someone to manage your finances,' said David Barkhausen, a fee-only life insurance consultant in Lake Bluff, Ill., and president of Life Insurance Advisors Inc."

There are obviously many views on how much insurance you should have. You also have to determine if you want term or whole coverage. Whole coverage is more expensive but offers you insurance for the rest of your life.

Don't just take out 10 times your salary. Take your time and utilize a life insurance calculator. If this figure is much higher or lower than 10 times your salary then you may want to consult a life insurance agent and consider switching terms on the proposed terms.

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