One of the most common questions we hear from clients every day is “how much life insurance do I need?” There is not an amount that will work for everyone because every financial situation is different, so it’s important to evaluate yours when deciding how much life insurance to purchase.
First, consider what you’re purchasing life insurance for. Is it as income replacement? Is the death benefit meant to cover a large payment like a mortgage? Once you have a good idea of what you want the death benefit to be used for, it’s fairly easy to decide how much life insurance you should have.
A general rule of thumb is to consider the following:
- Yearly net income
- Large recurring payments like a mortgage or auto loan
- Utility bills and other daily expenses
- Future payments like college education or private schooling
- Funeral expenses and medical bills
Add up all of those expenses and you should have a rough estimate of how much life insurance you need.Be sure to consider how long you want the death benefit cash to be used for and factor that into your calculations.
In addition, try an online life insurance calculator to make sure you are not missing anything and that you are comfortable with the final amount. Your life insurance agent can also help you decide how much life insurance to purchase.
It’s important not to buy more life insurance than you need because then life insurance rates could be higher than you can afford. Conversely, if you don’t buy enough life insurance, your family may not be able to maintain the same standard of living if you were still alive.
Work closely with your life insurance agent to decide what the right amount of life insurance is for you and your family.