Life Insurance Policy to Income Ratio

Your pessimistic nature always gets the better of you. Despite being newly married, landing a great job and having a beautiful wife, you often ponder worst case scenarios. A life insurance policy can provide you with some peace of mind, knowing that your family will be taken care of if a tragedy occurs. All you need to do is figure out how much life insurance you need in relation to your current income ratio.

Do You Actually Need Life Insurance?

For anyone considering purchasing life insurance, it is important to first evaluate if you even need a policy. Those who have no spouse or children can probably spend their money more wisely elsewhere. You may not need life insurance if you have enough assets to provide for your dependents after your death. If however, you have a family and no assets to speak of, a life insurance policy in direct correlation with your income is recommended.

Effects of Income Ratio on Your Life Insurance Coverage

When deciding on life insurance coverage levels, certain factors regarding your entire financial status need to be evaluated. One of the most important factors is life insurance as a means of income replacement. If you are the only source of income for your family, your life insurance policy to income ratio should cover your annual salary plus an additional cushion to guard against inflation.

Other Factors Affecting Your Life Insurance to Income Ratio

Additional factors affecting your life insurance policy to income ratio include debt and future obligations. It is important to look at how much outstanding debt (in the form of mortgages, credit cards, and outstanding loans) you and your family have. Your policy should certainly cover that amount. If you also want to ensure that your child’s college education will be paid for, your policy should cover those future expenses as well.

The topic of life insurance policies is not a pleasant one. No one wants to consider the end of his or her life. If however, there are others relying on you for survival, it is the prudent to explore your options.