Financial planning consultant Richard Cayne at Meyer International is no stranger to hearing this from his clients: “How much money do I need for life insurance?”
These clients often expect a one-size-fits-all answer. However, there is no such simple answer to such a multi-faceted question. How much life insurance you need to very closely tied and related to what kind of life you live, what your family’s future needs and expenses might be and how you want to provide for them.
For a good financial planning consultant to answer that question for you, you need to answer several questions yourself.
Here are some of the questions that Richard Cayne at Meyer International suggests that you ask yourself when considering how much life insurance you need:
What Is the Money For?
The answer to this question, for most people, is income replacement. The benefits of your life insurance policy are simply to replace the income you would have made for your family if you had been alive.
This money can be used by them in exactly the same way that your paycheck would have been used: to pay household bills, cover living expenses and perhaps save a bit.
In more rare cases, policyholders might strategize for larger payouts that can actually be used to generate wealth as well as cover incidentals such as inheritance taxes if you have bequeathed valuable assets to your heirs.
What is Your Family’s Financial Expectation of You?
Another question to answer is what role you play in your family’s financial care. Are you the sole breadwinner? Does your spouse work? Does anyone in the family have a trust? Do you also have retirement funds or investments?
By answering these questions you will begin to see what your family has and what is needed. If they have nothing, you need to cover all their financial needs with your life insurance benefits. If they have some of the items listed above, you may only need to cover some of their needs.
Discuss Details & Expectations
Sit down and talk to your family about these issues when you are purchasing your life insurance. You want to make sure that everyone is on the same page as far as needs and expectations.
Maybe you expect that your life insurance should cover the cost of living for your spouse for five years and then she might go to work. But perhaps she expects that they would never go to work. This is not the sort of detail you want to be left as a last-minute surprise!
Once you’ve considered and answered these questions, approach your financial planner about buying or amending your life insurance policy. With this information at hand, your planner can do the rest.
For further information about life insurance and other investment topics, Richard Cayne and Meyer International can be reached at (+66) 02 611 2561
