You’ll want to throw the balance of your mortgage on top of that so that you know your family will be able to continue living in your home after you pass away.
If there are any other debts you want to cover, add those into the calculation, and if you decide you want to pay for college or other education costs for your children, throw those in for good measure.
Let’s look at a few examples:
Matt is 38 years old with a wife and no children. He recently bought a house for $230,000, putting $50,000 down in Louisiana. The couple owned the house for one year and paid off $18,000.
So the outstanding balance on the mortgage is $162,000. Their car is paid off. Their monthly bills come to an average of $350.
Matt wants to ensure that his wife can cover funeral costs (around $20,000), the remainder on the mortgage ($162,000), their credit card debt ($32,000), and the cost of living for 3 years while she grieves for which he has allotted $20,000 for bills and groceries.
In total, he needs a policy that offers a $234,000 minimum. He opts for $250,000 with a MassMutual life insurance agent in Louisiana to be on the safe side.
Trent is 42 years old with a wife and three kids (12, 15, and 17) living in L.A. He paid $470,000 for his home, put $20,000 down, and has been paying into it for years. He still owes $320,000. He owes $12,000 on the first car and $22,000 on the second car. His family has $27,000 in other debt. Monthly bills amount to $1,100.
Trent wants to ensure his family can pay off the home if he passes away, live for a few years without worrying about returning to work, and that his children will have some money for college. So Trent needs $450,000 in coverage plus $100,000 per child. In total, he takes out a life insurance policy with Nationwide agent in L.A for $750,000.
Tina is 70, divorced, with no children and no debt. She has owned her house in Dallas for decades. She only wants enough money to ensure her younger sister can cover the funeral service costs. So, for Tina, $20,000 for final expense life insurance with Transamerica in Dallas might be the best option.