Your salary is the most common factor used in determining your life insurance needs, with experts suggesting buying a policy that is 10-20 times your annual salary. However, your salary may not be the only important factor to consider when purchasing life insurance. It is important to also consider how much money is needed to protect your family should you no longer be around.
To help you determine how much your family will need, answer the following questions:
- How much money will my family need immediately for funeral costs and any outstanding debts?
- How much money will my family need to continue living the lifestyle they are accustomed to, as well as pay current monthly expenses, such as the mortgage, and any future expenses?
When considering your family’s financial plan, it is recommended that life insurance for both spouses be included. It is common for families to cover both husband and wife given that after the loss of a parent, there are a number of financial pressures on the family.
Life insurance rates have decreased, making now a great time to shop around for a more affordable life insurance policy. It is recommended that you carefully compare your current life insurance policy with the policy you are considering as a replacement. Keep in mind the following factors:
- Guarantee periods
- The insurance company’s financial strength
- Available riders
With a new life insurance policy, you also will have a new contestability period. The new contestability period starts when your new policy is effective and lasts usually for the first two years of the policy. It is important to remember to not cancel your existing coverage until you have received confirmation that your new life insurance policy has been approved, payment has been received, and the policy has been delivered to you (or put in force).