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HOUSTON BUSINESS REVIEW

How Much Life Insurance should I own?
By Mike Alexander Sr.

Mike is involved with several organizations including the National Association of Health Underwriters, Independent Insurance Agents Association, East End Chamber of Commerce, Better Business Bureau and the National Association of Small Business Owners, to name a few. Mike is a licensed Risk Manager and highly regarded in the insurance industry.

For more information on ABM and Mike Alexander, visit their site here.

I am always asked the question on how much Life Insurance do I need. The average family owns about $190,000 of life insurance.  Actually the amount of life insurance that you should consider owning is based upon a number of Factors. I have a simple form below that will help you determine the amount you need. Before you estimate, with real numbers, how much life insurance you and your family should consider owning, answer the following questions:  

1. Are you a one or two income family?  ( if two incomes, both breadwinners need adequate coverage.)  
2. Do you have Dependent children?  
3. Should a breadwinner die prematurely, would the serving spouse work outside of the home?  
4. Would the surviving spouse's income be sufficient to maintain the family's current lifestyle?  
5. Would you want to provide your family with enough tax free life insurance proceeds to pay off the mortgage, pay off debts, provide for final expenses, pay for child care, provide emergency funds, and provide some college funds.  

Now you are ready to estimate your life insurance needs,  simply complete the Cash Needs Analysis.  

1.   The Last Expense Fund should provide the necessary funds to pay for funeral expenses (average national cost  = $9,700.00), last minute medical expenses and income taxes.  
2. The Debt Fund should provide the surviving spouse with enough money to pay off installment loans, credit cares, car loans, etc......  
3. The College/Education Fund is designed for parents who want to provide their children the opportunity to attend college or trade school. The average cost of attending a 4-year State University is 16,000 to 19,000 per year.  ( I know I sent Kids to A & M and Texas)  
4. The Child Care Fund is for parents who currently are paying for their young children to attend pre-school. Many parents pay $5000 to $7000 per year in child care expenses.  You would simply multiply the # of years your child would be in preschool.  

1. Expense Mortgage Protection Insurance, (this type of coverage is a rip-off to consumers, You should get a Level Term policy for an adequate amount to cover you mortgage and other expenses, its cheaper and a better deal for your family)  
2. Credit Life Insurance , again, this is mostly a rip off and you and your family are better served with Level Term Insurance for 10, 20 or 30 years.  
3. Decreasing Term, not a good deal, always buy Level term coverage.  
4. Life Insurance on Children should be limited to the Last expense Funding (i.e.: a 10,000 policy on a Child should be enough to cover final expenses for a child) Be leery of a life insurance salesman trying to sell you a 100,000 policy on a child, the child has no insurable interest and has no need for that much life insurance.  

Most people will need about 5 to 7 times their yearly salary in life insurance. (example: you make 50,000 per year, You should have at least 250,000 in coverage)  

Again, use the Simple Cash Needs Analysis form below and figure your needs, You should update this at least every two years.

CASH NEEDS ANALYSIS

	You	Spouse
Last Expense Fund	$_________________	$_________________
Mortgage/Rent	__________________	__________________
Debts	__________________	__________________
Child Care	__________________	__________________
Emergency Funds	__________________	__________________
Total Cash Needs	$_________________	$_________________
(Subtract)  Current Insurance	- _________________	- _________________
(Subtract)  Liquid Assets	- _________________	- _________________
Total Cash Need (Insurance amount to own)	__________________	__________________

For more information on Life Insurance visit www.abminsuranceservices.com or call 281-448-3040

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