The best way to protect your family before you pass away is to have a life insurance policy. Upon the event of your death, your beneficiaries will receive the money tax-free. Since your debts and income change frequently, you can estimate how much life insurance you need through some calculations.
Here is important information to think about when figuring how much to cover. In the event of your passing your family will be responsible for the debt that is left behind. It is important to have enough coverage so your family can repay it and keep their current lifestyle.
Your funeral expenses can cost thousands of dollars, also estate costs including executor and probate fees could add thousands more. When you pass away, all of your assets are merged together for tax reasons, as if they have been sold. Any tax-sheltered assets you had become taxable after your death. If you transfer them to a spouse they become taxable upon their passing.
Life insurance proceeds can be used to pay for your child’s education. When calculating how much you need remember to add child care cost. Also makes sure your life insurance covers your income adequately.
Things to consider when determining how much life insurance you need are the cost of your funeral, the amount of debt you owe, your children’s education cost, and how much your family will need to maintain their lifestyle. A good guideline to follow is: $20,000 for your funeral + debt + $60,000 per child for education + 20 times your annual income. After adding all the numbers up you will have the amount of insurance you need.