How much life insurance do you need? That depends! The right amount of coverage depends on whether you're married, the size of your family, your financial goals, and your current financial obligations. When you're young, you may not have a great need for life insurance. However, as you take on more responsibility and your family grows, your need for life insurance increases.
Choosing Coverage: Where to Start
Since your needs will change over time, it’s a good idea to take a look at your coverage from time to time and make sure it's still meeting your needs. Your best resource may be a financial professional like me! If you don't have coverage yet, your answers to these questions will help you figure out how much you'll need:
- What immediate financial expenses (e.g., mortgage, credit card debt, funeral expenses) would your family face upon your death?
- How much of your salary is devoted to paying bills and saving for the future?
- How long would your dependents need support if you were to die tomorrow?
- How much money would you want to leave for special situations, like college funds for the kids, a gift to your favorite charity, or an inheritance for the kids or grandkids?
Next, let's work on creating an estimate for you so you can get a quote.
Creating an Estimate
Most agents recommend 8 to 10 times your annual salary as the minimum amount of insurance you should have to protect your loved ones. For example, if your annual salary is $45,000, your minimum estimated life insurance needs would be:
$45,000 X 8 = $360,000.
Another way to calculate how much you need is to take both your salary and your debts into consideration. To do this, start with five times your gross annual income. Next, add the total of any mortgage, personal debt, final expenses, and special funding needs you want your life insurance to cover (e.g., college funding for the kids). For example, let's assume you earn a gross annual income of $60,000. Now let's say you also have expenses that total $160,000. Your insurance need would be equal to:
$60,000 x 5 + $160,000 = $460,000.
No matter what level of coverage you need, the right life insurance policy is just a call or click away!