How much life insurance do you need?

Life insurance can be an important way to financially provide for your family with a death benefit if you are no longer here to support them. The recommended coverage differs from person to person, but several factors can help you estimate the amount of coverage that is right for you.

Estimating life insurance needs

To calculate how much life insurance coverage may make sense for your family, begin by estimating current and future financial obligations, including debts, living expenses, and long-term goals. Here are some standard life insurance uses to remember when estimating the amount of coverage that may be needed.

Support for your loved ones

When a person has a family or other loved ones who depend on them, they may consider life insurance to help create a financial safety net. To determine a suitable amount of life insurance coverage, consider factoring in the cost of caring for dependents, such as children or parents. Think about the amount of money they would need to cover daily living expenses. Make a list of necessities like food, utilities, and medical costs, and consider adding in discretionary funding for vacations and other needs. To estimate the minimum amount of life insurance that may be appropriate, these questions can be a helpful place to start:

•  How much income would I like to replace if I were no longer here?
•  How many years after I’m gone will my family need my financial support?
•  How much debt would I like to pay off immediately?
•  How much would I like to provide for childcare?
•  Would I like to provide college funding for my children?
•  How much do I want to put into an emergency fund?

Funeral expenses

The immediate expenses following the loss of a loved one can often cause a great deal of financial stress. The average funeral cost is over $8,000 and can likely be more with additional items and services. With life insurance, a family can rest assured that these expenses are covered, adding a little peace of mind during an incredibly difficult time. Consider personal preferences for a memorial service, burial /cremation, and cemetery to help estimate how much will be needed to pay for these expenses.

Paying off debt

When making life insurance coverage calculations, the amount of debt is an important factor to consider. If there is outstanding debt, a family may become responsible for paying down these amounts. This can include a mortgage, car loan, credit card, student loan, and any other personal loan. With sufficient life insurance coverage in place, beneficiaries can use the benefit amount to help pay off this debt.

Funding college education

The cost of higher education for your children is also a consideration when deciding how much life insurance coverage is needed. Tuition can be one of the largest expenses, where the average in-state tuition at a public 4-year institution costs over $9,700 per year. This does not include additional expenses and costs of living, like room and board, transportation, books, and supplies. If your kids are currently enrolled or plan to attend college or a trade school, it’s a good idea to include these amounts when determining the amount of coverage that is right for you.

Health and age

A person’s current age and health are common determining factors when deciding the type, amount, and cost of life insurance coverage. Typically, life insurance rates increase as a person gets older since, as we age, there’s a greater risk of death. This can be a good thing to keep in mind when deciding the best time to consider buying a policy. Certain pre-existing health conditions, like high blood pressure, diabetes, and high cholesterol, may also impact eligibility and rates. In general, the younger and healthier a person is, the lower the premiums. Hence, it’s important not to delay if financially protecting your family is at the top of the list.

Cost of a life insurance policy

When determining how much life insurance coverage to buy, experts commonly recommend calculating six to ten times the amount of your annual salary. This rule of thumb can offer a good starting point, but remember that every situation is unique, and all factors and goals should be considered before landing on a number. Since buying life insurance is an important decision, contacting a financial professional can help get the process rolling in the right direction. They can be a valuable resource when determining the type of life insurance and coverage amount that can meet your needs and budget and ensure your family has the financial security they deserve.

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