"Set it and forget it" is a phrase that applies to rotisserie ovens—not to your life insurance coverage.
That's because it's important to perform annual life insurance checkups to ensure your coverage is keeping up with your life changes and milestones. For example, if your income changes, your family makeup changes or you buy a new home, the amount of life insurance coverage you need could be affected.
Here are five factors you should consider as you ensure you have enough life insurance coverage.
1. Burial Wishes and Current Funeral Costs
Inflation isn't just impacting groceries and utilities. It's causing a rise in funeral costs as well. In 2023, the median cost of a funeral is $7,848, a five-year increase of 6.6%. Meanwhile, the median cost of a funeral with cremation is $6,970, a five-year increase of 11.3%. Knowing your burial wishes in advance—and ensuring your life insurance can cover the costs—helps ensure your loved ones aren't left with a large bill.
2. Your Debts
Has your debt situation changed since the last time you purchased life insurance? If you've taken on a bigger mortgage or financed a large purchase, you may need more life insurance to cover that amount. Conversely, if you've paid off your mortgage or recently find yourself debt-free, it's possible you could use less coverage, depending on other factors.
3. Your Income
Nearly one-third of Americans say they have life insurance for income replacement, according to Nerdwallet. If your family relies on your income to cover day-to-day expenses, then it's crucial for you to have enough life insurance to ensure your family can cover ongoing expenses in your absence.
In order to calculate how much life insurance you need to cover your income, simply multiply your income by the number of years you want to provide income replacement for your family. For example, if your income is $60,000 and you want to provide income replacement for five years, you would need $300,000 in life insurance coverage.
Curious about how life insurance premiums are calculated? Learn about the role of life insurance underwriters.
4. Your Family Makeup
Getting married or divorced can affect your life insurance needs, as can having children. Many people factor college expenses into their life insurance calculations. In 2023, according to the site Education Data, the average cost of attendance for a student living on campus at a public 4-year in-state school is $104,108 over four years so if you want to ensure your life insurance covers college tuition for three children you'd need enough life insurance coverage.
5. Your Desire to Leave a Meaningful Financial Legacy
Life insurance is one of the easiest ways to leave a meaningful financial legacy that can benefit your family for generations to come. As you consider the amount you'd like to leave, keep in mind how inflation could erode the value of your death benefit over the long run. Revisit your policy regularly to ensure your coverage amount is enough to impact your family well into the future.
Is term or whole life insurance best for you? Read here for a simple rundown of these types of coverage.
Want more? Read How Life Insurance Can Help Ensure Financial Security