insurance

## What we'll cover

• Methods to determine how much life insurance you need

• How to use goals to calculate your coverage

You know life insurance is an important tool to prepare your family’s finances for the unexpected — a critical first step. But how much coverage do you actually need?

Going over could mean overextending your finances now, but under-estimate and you could leave your family short on resources once you’re gone. Taking the time to find the right fit ensures you’re prepared for whatever lies ahead.

## Calculate the right-sized policy for your needs

The amount of life insurance you need depends on your life stage, goals and budget. One rule of thumb is to purchase a life insurance policy worth approximately 10 times your income. But you may need significantly more depending on your individual needs.

To determine the coverage you need, factor in your overall debts, how much you have in savings, your current annual income and any life insurance you may already have. You can use a variety of methods to find the policy size that will accomplish your goals.

One rule of thumb is to purchase a life insurance policy worth approximately 10 times your income.

## The DIME method

A life insurance policy worth approximately 10 times your income is a popular guideline, and the DIME (debt, income, mortgage and education) method takes it a bit further by factoring in higher education expenses for children. Remember to include not just tuition, but books, housing, food and other associated costs.

## The 'ballpark' method

You don’t need to start with a precisely calculated number. By first mapping out your income and the expected expenses your family has, you can define a baseline from which to build a more specific plan.

To determine your coverage, multiply your annual salary by your term. For example, if you make \$100,000 a year and have 10 years left until retirement, your ballpark coverage is \$1 million.

Learn more: Here's how to determine the amount of life insurance you need.

## The goals-focused method

With this approach, follow three simple steps to use the financial goals you want life insurance to accomplish as a guide to determine the size of your policy:

If you were to die in the next 10 to 30 years, what challenges are you most concerned about your loved ones facing in your absence? Decide if money could help mitigate each of the problems. Those might include:

• Keep the house/buy a house

• Pay off debts

• Afford daily expenses

• Afford travel and hobbies

• Afford higher education

• Pay for retirement

• Pay for funeral

Many of these life insurance goals look a lot like general financial goals because the purpose of life insurance is to replace economic value and allow your loved ones to maintain their current standard of living in your absence.

## Put some numbers to it

Now that you’ve outlined your goals, figure out how much money is needed to get your family there. Use the longest time horizon on your list to figure out your term. If the longest horizon is in 20 years when your spouse plans to retire, your term should be 20 years. Add up the total amount of money that will be needed over your term and subtract any savings from this number to get your coverage amount.

Finally, do a gut check. Does the amount you came up with feel like enough? While the math should make sense, your intuition should also play a role in putting your mind at ease. After all, life has many financial twists, turns and surprises that can’t be exactly planned for.

## Work out what you can afford

Start out by getting a quote for your ideal coverage and term. If the quote fits your budget, you can rest easy knowing you have everything covered. But if money is tight, consider strategies to stretch your dollar:

• Federal Programs: In some instances, the government pays death benefits to members of your family, so you can deduct those from your total coverage amount if you qualify. Make sure to factor in your spouse or partner’s income and only calculate your share that is needed.

• Max Out Your Coverage: Reduce your term to the years you feel are most critical for supporting your family — for example, while your children are young.

• Revisit Goals: Determine the single most important thing you want to ensure happens — and trim your coverage accordingly.

And don’t worry if you feel like the amount you can afford now is insufficient. Apply for a policy that works for now, and then, adapt it over time as you are able.

## Maximize life insurance to provide security for your family

Worrying about whether your family will be cared for when you’re gone weighs heavily on most of us. But planning ahead can help you manage those worries and prepare for the worst. Purchasing the right amount of life insurance will give you peace of mind that your family will be provided for and able to accomplish financial goals, even in your absence.

Ally has teamed with Ladder to offer a broad range of policies that fit a variety of goals and budgets. Use the Ladder life insurance calculator to get a quick and easy estimate of the amount of life insurance you should purchase and apply for term life insurance today.

Disclosures: Ladder Insurance Services, LLC (CA license # OK22568; AR license # 3000140372) distributes term life insurance products issued by multiple insurers – for further details see www.ladderlife.com. All insurance products are governed by the terms set forth in the applicable insurance policy. Each insurer has financial responsibility for its own products.