When looking for the right insurance, it is a good idea to be thorough. Life insurance policies can be a tough sell if you go overboard with extra features. The cost adds up, and it turns into more hassle than it is worth. By getting a better understanding of the necessities, you can avoid this common insurance trap.
Multiply Your Income
How much do you make per month and annually? To get a good estimate of how much insurance is needed, multiply your income by 10. This isn’t a hard rule but works well in determining a starting point for a good life insurance plan. In addition to that, adding enough to cover per child college expenses is vital for long-term usefulness. All of this serves as a base amount to help you understand the amount of insurance required.
Over time, this number can change in a negative or positive amount. Having a child is a good example of a life change that requires a flexible life insurance policy.
Have You Heard Of The Dime Formula?
In short, DIME is an acronym for debt, income, mortgage, and education.
Add up your current and expected future debt including the estimated cost of a funeral. Look at your monthly and annual income and put a hard cap on the expected amount for your family to live comfortably. Mortgage is a simple amount and should include any additional interest that accrues. Finally, the cost of education needs to be carefully evaluated. With rising costs in multiple areas, this can be the hardest part of DIME to correctly influence with a life insurance policy.
Stick With Your Best Number
At this point, you have the target number needed for life insurance coverage. To narrow it down even further, calculate obligations and subtract liquid assets. All of these will play a role in finding that magical number so that you don’t overpay for life insurance.
Remember that debt carries interest that will affect the overall amount owed. If this interest adds up on a monthly basis, then that can dramatically change your best number estimate. Independent contractors will have the most difficulty coming up with a number in this section.
Extra Tips
Use all of the tools provided by the life insurance company you’re interested in. They will usually have calculators, a list of plan benefits and resources to help with making a decision. A lot of the questions you have about overpayment can be found in the FAQ section of their website.
Crunch the numbers and double-check them for errors. Once you get into the habit of understanding the materials, it becomes easy to choose the right plan.
Wrap Up
Find the correct coverage so that insurance makes the most sense for your situation. Trying to get everything on one plan will only drain you financially.
You can gain all of the positive benefits of life insurance without it hitting your bank account. The only requirement is being smart about your choice in available plans.