Whether you're an individual or a business owner, life insurance premium financing guarantees you the funds necessary to purchase coverage for yourself and family members or extend the same opportunity for your workers.
The problem? You may wind up purchasing an amount that turns out to be insufficient. As it happens, many Americans are aware that they need more life insurance than they currently own.
"33% of life insurance owners believe that the amount they owe won't cover all their expenses."
Of the nearly 55 percent of Americans who own some form of life insurance - "some form" meaning individual or group - 1 in 3 thinks what they have isn't enough, according to data compiled by the Life Insurance and Market Research Association.
On average, Americans own around $168,000 of life insurance per person. However, for high-net-worth individuals, this may not be nearly enough to pay for the cost of living, especially if people are living up to their means rather than below it.
Adults have around 3.4 years worth of replacement income, which isn't even half of what experts recommend. It makes sense, then, that 40 percent of Americans wish their spouse had more life insurance coverage, according to LIMRA polling. That's up from 30 percent who indicated as much in 2011.
It's not a matter of if you or your employees need life insurance - it's a matter of how much is enough. Here are a few ways that can help you discover the correct amount.
1. Calculate your expenses
If you're like most Americans, you own a house but you haven't actually fully paid off your mortgage. Home values across the U.S. have never been higher than they are today, increasing every month for more than six years, per the National Association of Realtors. In other words, the mortgage is likely your biggest ongoing expense. Figure out how much of your mortgage you've paid off and what you have remaining. Check LifeHappens.org for a life insurance calculator that makes breaking down the numbers easier.
2. Determine other debts you owe
From paying off the car to student loans to credit card bills, you likely have other expenses that you're getting out from under in installments. Add up the total sum of these expenses over a year, combined with the number of years you want your death benefit to cover, which ought to be at least seven years. You may also want to factor in specific services like cable, utilities, water and keeping the house warm or cool.
3. Factor in your final expenses
Funeral arrangements can be pricey, costing upwards of $7,500, depending on the region of the country and what's included in these services, according to the National Funeral Directors Association. Basic services alone - not including the casket or transportation - is north of $2,000. Factor in what you plan on your services including to find the correct life insurance amount. Eighty-five percent of Americans say they own life insurance to take care of costs associated with burial and final expenses, according to LIMRA.
4. Account for children's education
The cost of tuition far surpasses the rate of inflation, with out-of-state public college students paying more than $25,600 in the 2017-18 academic year, according to The College Board. If you're helping out with this amount or paying the full price for your kids, be mindful of how many years it will take them to graduate and if their plans also include graduate school.
5. Add up your available assets
Do you own a 401(k) or Roth IRA? Do you invest in the stock market or possess certain bonds? A diversified portfolio can leave a legacy for your loved ones and defray how much life insurance you'll need. Calculate your total amount of payable assets, making sure to include what you have in savings and certificates of deposit.
When you know how much life insurance you need, financing it couldn't be simpler. Leveraged Planning® Solutions provides the means to keep your money operating in its present capacity - wherever the funds are going towards - all while taking care of the premiums that fund your future. Talk to a GFD Services advisor for more details on the program's highlights.