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How Much Insurance Do You Need?
August 19, 2016
The right amount of insurance can be as important as having the right type of insurance
Don't you sometimes wish someone would tell you exactly what your needs will be for every stage of life? Wouldn't that be nice? As human beings we don't get that luxury. But we do have access to tools to help us make smart choices.
How much income will your family need if you're gone?
When determining your insurance needs, the answer depends on at least two variables:
- How much your family needs to meet immediate obligations.
- How much future income is needed to sustain the household.
Financial areas to focus on
Since those are big questions, it can help to break them up into smaller ones. Here are some areas to address.
- Mortgages and other debts: Total your mortgage balance, car loans, student loans and any other debts such as credit card balances. You'll want to make sure your insurance proceeds can cover all of them.
- Education: Look up current costs for colleges you're considering for your children and add the amount to your tally in today's dollars. Note that college costs have been increasing about 5% every year.
- Time: Consider how many years you'll need insurance. If you're in good physical shape, you may be able to buy permanent insurance and lock in the premiums.
- Final expenses: A funeral, burial and related expenses. Not the most fun to think about, but funeral expenses can cut deeply into savings. And your beneficiaries may be able to get the income tax-free proceeds from insurance faster than if they waited for money from your estate.
- Income replacement: Once you cover funeral expenses, debts and education, your family won't need to replace 100% of your income. This is where the educated-guess part of the calculation comes in. One common and sound rule of thumb: Aim to cover 50% of current pretax earnings until retirement.
With these sorts of figures in front of you, the next step is to model some scenarios. For help with that, check out the Thrivent Life Insurance Calculator, which can tabulate your current assets, expenses and income and deliver a breakdown of your family's future income and expenses.
Finally, try not to think of this as a one-time exercise. What worked for you at age 32 may not at 52. You're wise to reassess as you go. With the proper tools, you'll put yourself in great shape to handle whatever life throws at you.
And keep this in mind too: Your Thrivent Financial representative can also help you create a financial strategy that will help you manage those inevitable surprises.
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Insurance products issued or offered by Thrivent Financial, the marketing name for Thrivent Financial for Lutherans, Appleton, WI. Not all products are available in all states. Securities and investment advisory services are offered through Thrivent Investment Management Inc., 625 Fourth Ave. S., Minneapolis, MN 55415, a FINRA and SIPC member and a wholly owned subsidiary of Thrivent. Thrivent Financial representatives are registered representatives of Thrivent Investment Management Inc. They are also licensed insurance agents/producers of Thrivent.
The federal income tax treatment of life insurance is unclear in certain circumstances. A qualified tax advisor should always be consulted with regard to the application of law to individual circumstances. Thrivent Financial does not make any guarantee regarding tax treatment (federal, state or local) of any contract or of any transaction involving a contract, particularly after insured age 100. Life insurance proceeds may be subject to federal and/or state estate and/or inheritance taxes.