Most Insurance Companies have a “Needs Analysis” where you can answer several questions and the calculator will spit out a number. If you happen to be buying a home here in Ventura County, this number can be large due to how much a house or condo can cost. A recent article in the San Diego Tribune talks about how housing costs in California are not just a problem but have become a crisis. A lot of people cannot afford to buy a home, and many that can qualify to buy a home have a payment that is a major portion of their monthly income. So when the discussion begins about how much Life Insurance is needed, it is not as easy as adding up what you owe.
Ideally you would want enough coverage so that if you do die, the other parts of your family’s life can carry on. They won’t need to move; the kids can complete their education; they can eat three meals each day; and the surviving parent won’t have to work a second job to maintain these things. Paying off the mortgage would be nice, but with the price of homes in So Cal, this can add a large number to how much coverage you buy.
In my thinking you start with your ideal amount and see if you can budget that cost into your lifestyle. If this is too tight then you will need to back down from that number, but ultimately you want to be in a position where you have options. You don’t want your surviving spouse needing to sell the home in a down market. If the kids are in private schools, you don’t want them to be forced to change schools mid-year. You want your passing to be the only crisis, not one of many.
If you have any questions on this topic or need help evaluating your circumstances, please give me a call.