Insurance: A Guide for the Masses

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Calculating Your Life Insurance Amount

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Life insurance is meant to cover expenses your family might incur after you die, and it's common to find life insurance offered in increments like $50,000, $100,000, and so on. Chances are that few people really know what should go into life insurance calculation because it's not something that people usually give a lot of thought to once they see those pre-set categories. They just choose one that matches what they think their family will need and leave it at that.

However, it's good to take an in-depth look at the exact numbers that you'll need. First, that will obviously give you a better idea of which coverage to choose on your application, and second, it could also show you if there are any costs you need to take care of now, instead of leaving for your family.

Should You Include the Costs of a Funeral?

Chief among those costs is the cost of a funeral. Many people believe that life insurance should cover this, but there's a catch. To get life insurance, your family will need to provide your death certificate, and official death certificates often take at least a couple of weeks, if not a month or more, to be issued. Your funeral needs to be paid before you're buried, so life insurance doesn't help much there, except as a way to reimburse whoever paid in the first place. And with funerals costing in the tens of thousands of dollars, there's no guarantee someone will be able to pay at all.

In this case, what you might want to do is include a sum to pay out anyway, but then go pre-arrange and pay for your funeral. That allows your relatives to bury you in a timely manner while still receiving reimbursement for the few costs that you won't be able to pay ahead—but that will be much more manageable for grieving family members.

What Debts Might Your Heirs Be Responsible For?

Add up all your debts now, then double-check with each creditor about which ones your family will have to pay, which ones your estate will have to pay, and which ones will be forgiven upon your death. Note that there is a difference between your family paying and your estate paying, so you'll need to seek estate-planning help to ensure you know which debts can really be waived. Then, check with your main medical care provider to ensure you know what your family might have to pay should you die in the hospital. Anything that your family would need to pay needs to be in the life insurance amount.

You also want to consider including living costs for family members in the life insurance amount, amounts to cover school costs, and so on. Make a detailed list; if you were suddenly left without a supporting family member, what amount of money do you think you'd want or need? Visit websites like to contact an insurance agent and get more ideas about what to include in your life insurance application.