With the pandemic still in full swing, millennials and younger are starting to reconsider their need for life insurance. According to the Life Insurance Marketing Research Association (LIMRA), nearly 30% of adults are more likely to purchase life insurance in comparison to the percentage before the pandemic.
There are a few things you need to consider when thinking about purchasing a life insurance policy. One of these things is how much life insurance exactly do you need?
First Step: The Big Picture
Life insurance should be considered in the context of a larger financial plan. Many millennials first approach life insurance as a financial product when speaking with a financial advisor. These professionals partner with insurance advisors and insurance provider to help individuals see strengths and weaknesses in your current financial situation.
A private life insurance policy is always individual, so what is considered the best amount will depend on the type of policy, you decide to acquire. This will come down to how you see life insurance fitting into your overall financial plan and the financial future of your family.
Second Step: Start With Why
Not just a quote from a famous book by Simon Sinek, the decision to buy life insurance comes down to why you want the policy in the first place? Most people choose to purchase a policy to cover funeral and other expenses, like a mortgage, in order to avoid putting the financial burden on their families. Industry data back this up; According to a 2020 study conducted by LIMRA and Life Happens, Funeral and End of Life expenses were listed as the number one reason for purchase.
Familial financial security has been on the minds of many millennials since the start of the pandemic. Another study by LIMRA found that 44% of those surveyed stated they might face financial hardship should their spouse die prematurely. 28% of participants stated this financial hardship would begin within a month of losing their loved one.
Third Step: The Math
Don’t get too scared; the math isn’t that complicated. It just requires some simple addition and subtractions.
The Equation*: [Financial obligation you want to cover] – [Existing Assets that can be used towards bills] = Life Insurance Policy Needs.
So what goes into Financial obligations? Well, everything from income replacement to a mortgage and other large debts. So what about the other side of the equation; what exactly is Existing Assets? This includes everything from existing life insurance (like group insurance through your work), savings and any other financial assets you have in place.
Fourth Step: Finding an Advisor
When it comes to planning for your financial future, many people find that speaking to a certified financial planner is the best way to get a handle on their finances. Some may turn to online insurance calculators for help; however, due to the unique circumstances with every policy, these calculators are often too general to be truly effective for calculating costs. For those who wish to speak to an insurance specialist, working with an insurance advisor is preferable. At Hull Life, our dedicated team of advisors are best positions to work with you to find the best policy for your unique circumstances.
Your life insurance costs will vary depending on what you want to cover with the payout and what you can afford to pay. While the calculation is not complicated, it can be harder to map out all of these expenses to ensure you have adequate coverage. Working with a professional advisor can ease the burden on this type of decision.