How Much Life Insurance Coverage Do I Need?

Life insurance is something most people should have but many often overlook. Because it is not required as a condition of owning a vehicle or holding a mortgage on a property, it is often placed on the back burner. If you have a spouse and/or family and you are the primary breadwinner, then it is important to carry some level of life insurance protection.

Insurance coverage levels are dependent on each person’s individual circumstances. To begin the process of arriving at the proper amount, some questions should be asked. These include:

• What standard of living do you want your family to have after your death?

• Is it important for your family to be completely debt free?

• Do you want them to be able to live in the same home you are in now?

• How much of the present family budget is contributed by you? How much by your spouse?

• What is your current monthly/annual income?

• How much money is needed to pay off all family debts?

• How many children will need money for college?

• Do you have an existing college fund already set up for your kids?

• How many years will it be until your last child turns 18?

After you have answered these questions, you will have a good starting point in determining the amount of life insurance you should have. Most people will conclude the following:

1. I want my family to enjoy the same standard of living after I am gone.
2. I want my family to be debt free, including the mortgage on the home we presently live in.
3. I want to be able to replace my income at least until my last child graduates high school.
4. I want to provide for my children’s college education.

If you agree with these four statements, then you will need to do some calculations to come up with the life insurance coverage level that is right for you. First, multiply your gross annual income by the number of years until your last child turns 18; example, your gross income is $50,000 and your youngest child is 12 years old. $50,000 X 6 (years until your child turns 18) = $300,000.

Next, add your total overall debt (including car loans and home mortgages) to the total, $300,000 + $150,000 in debts = $450,000. Finally, estimate the amount your children still need to have adequate resources in their college funds (for this example, we’ll assume they still need $50,000) and add this amount to the total. $450,000 + $50,000 = $500,000. In this scenario, you would need a total of $500,000 in life insurance to be properly protected.

How Much Will This Cost? The good news about life insurance is the costs are going down as improved medical technologies extend life expectancies. These days, a forty-something male in relatively good health can usually take out a $500,000 life insurance policy for less than $50 per month. This, of course, is only a general guideline. As always, speak to your insurance agent about your specific circumstances to find out how much life insurance coverage you need and how low your rate will be.