How do you decide what amount of life insurance is the ‘right’ amount, especially when there are so many unknowns?
Life insurance should ideally help cover your funeral expenses, pay off mortgages and assist with managing day-to-day expenses:
Various types of debts such as a mortgage, student loans, car loans, etc. should be taken into account when setting up your life insurance policy.
For example, if you have a mortgage of $300,000 and student loans of $25,000, then your policy should cover at least $325,000. But don’t forget about interests and extra charges that may apply. Your policy should be a little higher than these debts to account for those additional costs.
Income replacement is especially important if you are the sole income earner of a household. You will need a policy which takes into account your income and then a bit more to account for inflation over the years. The recommended minimum amount of life insurance is 10 to 15 times your annual income, although this may be more or less depending on your personal situation. Both individuals in a married couple may need a life insurance policy, regardless of whether both of them work.
The earlier you begin your life insurance policy the cheaper your premium will be. The later you apply, the higher your premiums are, but you will still qualify! Don’t start your policy earlier simply because you are concerned about not qualifying later!
This advice is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is suitable for you and your personal circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the relevant product disclosure statement.