Consumers often ask how much they should spend on their life insurance. It’s a good question, but not necessarily an easy one to answer. This is because there are multiple factors that must be considered when setting a budget for a policy premium. And, like all other aspects of financial management, it’s a process.
The first factor is commitment. Your insurance premium must be paid on time, every time it is due. If it isn’t, then you run the risk of lapsing the policy, and depriving your beneficiary of needed funds.
So choose an amount you are confident you can spend for the duration of coverage, even if things get a bit tight.
How much should that be? That brings us to the second factor: value. What kind of coverage would $2000/year get you? $5000? $10,000? Pick a range of affordability, and get prequalified pricing for different policies. These will give you an idea of just how well your family or business will be protected, for what cost. What plan would give them maximum security? Minimal acceptable security? Moderate security?
Here we must consider the third factor: a life insurance portfolio is often built in stages. You get a policy in place that does a good job absorbing the risk of losing a loved one, and you then take it from there. Next year, you take a look at your situation, and fortify the protection as needed.