If you feel like you have plenty of life insurance, you aren't alone. Although the majority of Americans assume their policies are adequate, research has shown that people in the Northeast tend to underinsure themselves by about $334,000, while folks who live in the west might need $457,000 more life insurance to protect their assets after they pass away. Fortunately, you may be able to have the life insurance you need by doing these three things.
1. Recalculate Your Financial Needs
Although the old rule of thumb when buying life insurance was to purchase a policy that could replace the main breadwinner's income for ten years, new recommendations state that most people actually need about 20 times their salary. For instance, if you make $50,000 a year and you have a $500,000 policy, you might actually need a million dollars' worth of coverage to repay your debts, pay off your home, and help your family along until they are self-sufficient.
When you evaluate your financial portfolio, think carefully about how your financial needs have changed over the years. While that $500,000 policy may have seemed like an astronomical sum when you originally invested in the coverage, people tend to make more money over time, which means this might not be enough to help your family now.
Think about things like your normal monthly budget, your assets, and your liabilities. Take into account your personal health and the health of your spouse, and think about additional financial needs that might come into play in the future. For instance, if your spouse has a chronic health problem, you may need to bolster your life insurance policy to account for the fact that your spouse won't be able to work again in the future.
Also, keep in mind where your children are in their personal lives and whether or not they rely on you for financial support. If you have kids who currently live with you or who need assistance from time to time, consider adding more coverage to your policy so your beneficiaries can handle the burden in the future.
2. Invest Extra Money
In addition to recalculating your policy, think about investing any extra money you have to strengthen your financial future. As you get older and you pay things off like student loans, cars, and mortgages, take the extra money you would have spent on payments and invest it in appreciating assets like stocks, bonds, and real estate.
To protect your money, focus on investing in a wide variety of financial assets. For instance, instead of putting all of your money into stocks for a certain company, diversify your portfolio to spread out the risk.
Additionally, keep in mind that most returns are modest, so avoid companies or financial planners who promise out-of-this-world rates. For instance, the average rate of return on both stocks and real estate is around 7%, while bonds can be as low as 2% to 4%. However, by investing your money carefully, you can reduce the amount of money you would need a life insurance policy to pay out, keeping your family financially secure.
3. Lower Your Personal Debt Load
Another great way to have the life insurance you need is by lowering the amount of money to keep your finances stable after you pass away. For instance, by paying off your home or staying away from credit card debt, you can allow your spouse to live off your modest policy if you pass away.
Talk with your insurance agent and your financial adviser about your personal debt loans, and focus on putting a little extra towards them every month. Before you know it, you might be even more self-sufficient, making your future even more stable.
If you are unsure about your personal level of life insurance protection, stop by our office to sit down with one of our specialists. Here at S.N. Anthony Insurance Inc., we can help with everything from life and health insurance to policies for your boat, home, and business.