How Much Life Insurance Do I Need?

If you’re thinking about getting life insurance, good for you! You’re making a smart decision to help safeguard your loved ones’ financial future.

So, how much life insurance should you get and when should you get it? Let’s get started and see what goes into that number, so you can make a sound estimate to protect the ones who matter most.

Calculating Your Life Insurance Needs

When it comes to calculating your life insurance needs, the outcome is unique to each person and family. But the key things to consider are usually universal.

Follow these general guidelines to calculate your life insurance needs:

Calculate your expenses. Consider the cost of day-to-day needs and ongoing expenses your family could be left with. Compile a list that includes food, utilities, debts, mortgage payoff or rent, and education — including future tuition. Don’t forget to take into account the cost of child care services, especially in the event a stay-at-home parent isn’t around anymore.

Final expenses. An average traditional funeral — including services at the funeral home, burial in a cemetery and the headstone installation — typically cost $7,000 to $10,000. You’ll want to make sure you include this substantial number when calculating your life insurance needs.

Income. How much of your annual income would your loved ones need to maintain current living standards? Next, consider how many years your family would need the support of your income. For example, this number could be the number of years before your youngest child graduates from high school. Multiply your annual income by that number.

Add up your assets. Calculate your bank accounts, investments, real estate, retirement accounts, CDs, existing life insurance and any other assets you own that may be liquidated at the time of death to help cover expenses.

Final estimate. Now that you know your expenses and overall assets, subtract the sum of your assets from your total expenses, and the resulting amount will give you an idea of how much life insurance you’ll need.

We’ve also created a handy Life Insurance Needs Calculator that quickly and conveniently helps calculate a life insurance estimate unique to your financial situation. Try it out!

Tips to Keep in Mind When Choosing Coverage

Now that you have a general idea of the coverage amount you’ll need, keep these tips in mind when looking at life insurance options.

Opt for more. Your income will likely rise throughout the years — and so would your expenses. So, buying a little more coverage than you think you’ll need is a good idea to ensure your family has enough of a cushion to live comfortably.

Don’t over buy. On that note, making sure you purchase adequate coverage is important, but if your premium is too high after adding extra coverage to your policy, the policy could lapse (from non-payment) and you’d lose the coverage.

Recognize the value. Be cognizant of what exactly you want out of your life insurance. Is it specifically to provide financial support for your loved ones if something unexpected were to happen to you? Or perhaps you also want to build cash value, which you could borrow from during your lifetime to help in a time of need. (Note: loans or cash value withdrawals may affect the policy’s death benefit and could require the need for additional premium payments to keep the policy in force.) Understanding what purpose your life insurance will serve can help you find the best coverage for your needs.

Age matters. Understanding how your age affects your premium is important when looking at life insurance coverage options. Learn more about when you should get life insurance to better understand when it makes sense to buy coverage.

Life insurance coverage options. Check out our SimplyProtected Term Life, Term Life, MyLife Flexible, and Whole Life coverage options to get an idea of what type of life insurance coverage might fit your unique circumstances.

Once you’ve determined your life insurance needs and are ready to take the next step, your American Family Insurance agent can help you decide what options are smartest for protecting your family’s financial future. In the meantime, check out the life insurance buying process to learn more about what to expect.

Policy Form L-36 10, Policy Form L-36 20, Policy Form L-36 30, Policy Form ICC13-97 UL, Policy Form L-97 UL (AZ, ND, SD only)


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Related Topics: Whole Life , Term Life , Buying Life Insurance