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Life insurance worth 10 times your income is often not enough



father son autumn parent rakingAuthor is not in the picture.Ariel Skelley / Getty Images

I have life insurance since my wife and first child, but I have increased the scope of insurance several times with the development of our family. I currently have about $ 2.5 million in life insurance for my wife and children, which is probably more than they could need if I died suddenly.

On the other hand, there is a lot to think about and provide life insurance coverage, and there really isn't a "perfect" formula for how much life insurance you should buy. I also know for sure that my family would never have thought that I had "too much" coverage for their needs.

I am also 100% sure that the common wisdom of buying a 10x income from life insurance puts families at risk. There are countless reasons why 10 times your income – or $ 100,000 coverage for every $ 10,000 you earn each year – may not even be enough.

Here's everything you should think about when deciding whether to follow this popular advice.

Your income matters as well as your expenses

Although timely life insurance is primarily intended to replace your income after it has gone, there is much more to think about than your payout amount. You also need to think about how many debts your family has, including how they can pay it back if you die early.

For example, if your family has a large mortgage, several car loans, credit card debt, and even student loans, it is very likely that having only 10 times your income is not enough. Even if you earn six digits and as a result buy $ 1 million under life insurance, this amount may disappear in a hurry when you start thinking about all the obligations that it has to cover.

Your spouse may stop working

Another reason to buy more life insurance than you probably need is the simple fact that life can change when you leave. If your spouse has a job that he loves, which now brings a good income, it does not mean that the situation will remain the same if you die.

It is very possible that your spouse will need to take some free time to grieve, and it is also possible that he will want to reduce working hours or even stop working together when they face life alone – especially if you have children.

Life insurance should certainly replace your income, but don't forget that you may need to make up for the shortfall if your spouse or partner feels a drop in income for any reason. They may desperately want to stay at home, but if you have life insurance, you can make the decision for them.

Policygenius can help you compare life insurance policies to find the right insurance at the right price »

Have children? Plan your studies

It is easy to think that you do not need a lot of life insurance when your children are small, but you must remember that children do not remain small forever! Day care bills will eventually be replaced by high bills for sport and extracurricular activities.

And the bills don't end when they reach college. Given the high costs of higher education, you may consider whether you need enough life insurance to cover all or part of your children's higher education.

Your children could always borrow money for school, but giving them free education is something you would never regret. Fortunately, having enough life insurance can make this dream come true.

There are things you just can't plan

Also remember that there are certain life circumstances that nobody sees. Maybe your whole family is now healthy and happy, but who knows what might happen in five or ten years.

Having a large life insurance can help your family in case your spouse or partner falls ill and cannot work, and even if one of your children requires expensive surgery or expensive long-term care.

You can plan a lot, but you just can't plan everything. Life insurance can be to cover any unexpected expenses your family may face, no matter what they are.

Life insurance is inexpensive, so there is no excuse

Buying 10 times your life insurance income can be common wisdom, but I think this advice is outdated. Timely life insurance is so affordable that it makes no sense to go without sufficient protection to replace your income and pay off all debts – while incorporating many "what if".

Because timely life insurance is so inexpensive, there is really no excuse to avoid buying enough protection to help you sleep well at night. Remember that your family never wants you to have less insurance if you leave – either they are happy with what they have or they desperately regret that you would not buy more insurance if you had the chance.

You have the opportunity to leave a legacy, but you can also leave your family spoiled and fighting for survival. This is one decision in which you won't get a second chance, so make sure you choose wisely.

Policygenius can help you compare life insurance policies to find the right insurance at the right price »

Jeff Rose is an entrepreneur dressed up as a financial advisor, author and blogger. Jeff is an Iraqi war veteran who served in the National Guard of the Army for nine years, including 17 months in Iraq in 2005. He is best known for his award-winning GoodFinancialCents.com blog and book "Soldier of Finance: Take Charge Your Money and Invest in Your Future." He is also the founder of Wealth Hacker Labs, a movement that aims to teach accelerated wealth building strategies for future generations.


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