What "coverage amount" do I need?
For quick help calculating a coverage amount for your life insurance needs, use our online life insurance calculator.
The amount of coverage you select should be equal to the financial loss which the death of the insured will impose upon you (or your beneficiary). Because human lives don't equate to monetary values, life insurance shoppers often stumble over the task of choosing an appropriate death benefit, but the process of calculating a proper amount of coverage is actually straightforward with a bit of instruction.
First of all, understand that the financial loss that an individual's death may impose does not always correspond to a loss of income. For instance, a homemaker may not earn wages, but he/she can still be insured because the death of a homemaker can bring a great financial loss on a family. How much will it cost to keep the family functioning without the homemaker? Consider the cost of a nanny, a housekeeper, a chef, etc., and you've got an idea of what financial loss is about.
If your family or business already has sufficient assets to cover all or part of the financial loss, you may not need life insurance, or you may need less than you think. If the family in the foregoing example had a lot of investments, they might choose to liquidate their assets in order to pay the costs of the nanny, housekeeper, and chef, rather than buying a lot of life insurance.
For wage-earners, current income is a good clue as to the financial loss that needs to be covered. When evaluating your coverage amount, however, reflect that the wage-earner's current level of income is probably lower than the level of income that he/she will make in ten years. The financial loss for such a person is really greater than a simple multiple of current income, then, and with inflation eating your assets from the bottom up, it's really important to involve such a factor in your calculations.
