How much life insurance do I need?

You know you’re at the stage of your life that you need life insurance. You’ve researched and talked to your parents, you spouse, and your friends whom you trust for advice.  They’ve helped you choose the type of life insurance you want—term life versus universal or whole life—that I cover in another blog.  But now here comes the tough decision.

How much life insurance do you need?  As my grandparents used to say, “That’s the million-dollar question.”   Every personal circumstance gives a different answer.  While you can’t always be exact, you CAN calculate an amount of life insurance you need that you and your beneficiaries will be comfortable with.  It can make us uncomfortable to think about our own death but life insurance provides a level of contentment knowing we aren’t leaving loved ones uncared for.

Consider this list of variables when determining how much life insurance do you need with your policy:

• Are you the major source of income in your household? If you are gone, how much will your family need to continue paying monthly bills?  Do you want to provide for them to maintain their current lifestyle without you?  How many years do you want to support?
• How many dependents do you have? How old are they?  Do any dependents have needs that are an extra financial drain? Transportation to therapy?  Special training?  Group sessions?  In home nursing?  
• Are you paying a mortgage? Do you want your family to continue to reside in the same place if you die?  What is the annual payment? How many years do you need to cover beyond your death?
• Do you want to leave a sum of inheritance? Do you want your debts to be cleared and have money left over for your beneficiaries to inherit?
• Do you plan to cover your own funeral expenses? Do you have money set aside to cover burial or cremation?  Funeral home expenses?

Calculation and measurement of how much life insurance you need to cover these expenses and your wishes to leave your beneficiaries cared for is somewhat easily to measure.  One rule of thumb:

• Take your annual income and multiply by as few as five or as many as 10 times your annual salary. This amount helps you determine how many years beyond your death your family would afford to live without you at today’s cost of living.
• A more accurate measure is by looking at your yearly income and how many years you have until your planned retirement. So, if you are 35 years old and can retire at 68, multiply your salary by 33.  At 35, if you are earning $45K then you want to buy a policy that pays roughly $1.5 million.

If you are looking for more details about how much life insurance coverage you need or how you can ensure your life insurance policy is current and you are protected, contact our office: