In the world of insurance, there are hundreds of different policies one can choose from. Out of all those policies, life insurance is the most under appreciated, but the most important insurance of them all.
After a decision has been made to add life insurance to the family’s insurance portfolio, there is one question that must be answered; “how much life insurance do I need?” This answer is simpler than some might think. There are two rules that will help you determine your ideal life insurance amount.
How Do I Determine a Life Insurance Dollar Amount?
When it comes to determining the amount of insurance a family needs, every individual, or family has a different situation. Trying to match what a coworker says they have, or what a neighbor says you need is not the best approach for this very important decision.
General Rule No. 1
The general rule of thumb when trying to determine the correct life insurance amount is to take your annual income, multiplied 7 to 10 times. This will give you a great starting point for determining a good amount of life insurance.
Also, with the ever-increasing cost of higher education, when your child is ready to go to college, the price will not be cheap. The rule, if there are children involved, is also to add $100,000 per child for all college expenses.
General Rule No. 2 – (The D.I.M.E Formula)
The D.I.M.E Formula is a general rule that has been used for years when determining the correct life insurance to purchase. This method takes a more holistic look at your total finances, including income, mortgage, higher education, and total debt. The acronym stands for:
D– Debt and Final Expense – This is where you would add up how much money you have left to pay the bills, outstanding debt, and your estimated funeral costs.
I– Income – Take your annual income and multiply it by how many estimated years you believe your family will need support.
M– Mortgage – Find out the amount you have left on the home outright.
E– Education- Depending on how many children you have, and if they are planning on going to a community college, small universities, or large universities; you need to calculate a total number here as well.
Remember, you can’t really pinpoint the exact amount of life insurance you will need down to the penny because there are just too many life factors. But, you can equip yourself with knowledge on some of the general rules and make an informed decision.
To learn more about life insurance, and other life insurance products, contact the professionals at HealthQuoteInfo.com at (855) 614-5057. Our licensed insurance experts will be happy to answer any questions you have.