Buying life insurance in Illinois is an important part of setting up an estate plan, but the process becomes complicated once you must pinpoint an amount that will take care of your family and loved ones after you die. Nerdwallet defines the general rule that you figure out your long-term obligations and subtract your assets and whatever gap there is between the two, your life insurance should fill.
Although this number can be affected by interest rates and the economy, it is generally a good idea to multiply your yearly income by ten. Remember that this rule does not account for any existing policies or savings accounts you have. If one parent stays home, they should also be insured because the working parent will have extra costs to cover without a spouse home to care for the kids.
Another thing to consider when purchasing life insurance is the cost of a college education for your kids. Some suggest that you add $100,000 per kid for college expenses. High tuition costs are one of the main things that keeps people from going to college and prevents upward mobility. Preparing for your child’s college expenses is important for their future.
A different way to determine your life insurance amount is to consider the DIME formula. This considers your debt and final expenses, which includes your funeral expenses and any debts other than your mortgage. Consider your income and how many years you will need to support your family. Next, calculate the amount required to pay off the mortgage. Finally, add in the cost of education to send your kids to college.
Rather than looking at life insurance as a separate purchase, consider the importance of a larger estate plan that covers your family after you die. Discuss what your family needs with a financial planner or estate planning lawyer.
This is intended for educational purposes and should not be interpreted as legal advice.