How much life insurance should you have?

Even if you’re not always here for your loved ones, the death benefit from life insurance can offer a way for you to continue to take care of them even after you’re gone. Deciding how much life insurance you need is unique to each person, but there are several factors that can help you estimate the amount of coverage that can best meet your goals.

Determining life insurance needs

To estimate the appropriate amount of life insurance for your family, start by assessing short and long-term financial responsibilities, such as debts, day-to-day living costs, and future aspirations. Consider the common reasons behind a life insurance purchase to help get the ball rolling on deciding how much coverage makes the most sense.

Final expenses

Along with the emotional distress of losing a loved one, paying for costly funeral expenses can add to the hardship, especially if a family does not have the savings to do so. On average, a funeral costs over $8,000, and can quickly increase with additional items and services. With life insurance, family members can rest assured that policy’s death benefit can cover these expenses. To help estimate how much will be needed for final expenses, think about personal preferences regarding burial/cremation, cemetery plot, and memorial service.

Supporting family members

If a person has a family or other loved ones depending on them, life insurance can help create a financial safety net for the future. When determining how much life insurance may be needed, think about the cost of caring for dependents, such as children or parents. This includes the amount of money they would need to cover daily living expenses, like utilities, groceries, and medical costs, and perhaps nonessentials like vacations. To begin estimating the minimum amount of life insurance needed, think about how you would answer these questions:

•  How many years will my family need my financial support?
•  How much income would I like to replace after I’m gone?
•  How much would I like to provide for childcare?
•  How much outstanding debt would I like to pay off?
•  How much do I want to put into an emergency fund?
•  Would I like to provide college funding for my children?

Reducing debt

If a person passes away with outstanding debt, their family may become responsible for paying it down. Debts can include credit cards, car payments, mortgages, student loans, and any other personal loans. With life insurance coverage in place, beneficiaries can use the benefit amount to help pay off this debt.

Paying for college

When deciding how much life insurance coverage you may need, you may want to consider the cost of sending your children to college. Tuition can be one of the largest expenses your kids will have, 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 books and supplies, room and board, and transportation. If your kids plan to attend college or a trade school, or are currently enrolled, you may want to include these amounts when determining the amount of coverage that is right for you.

Age and health status

Common determining factors when deciding the type, amount, and cost of life insurance coverage include an individual’s current age and health. Typically, life insurance rates increase as one gets older, since as a person ages, 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. Overall, the younger and healthier you are, the more affordable coverage can be, so putting protection in place as soon as possible can be beneficial.

The cost of life insurance

When researching how much life insurance coverage is recommended, many experts suggest estimating six to ten times the amount of your annual salary. This rule of thumb can be a good place to start, but since everyone’s situation is different, it’s important to consider all the factors that pertain to you. A financial professional can be beneficial in determining the type of life insurance and coverage amount that can meet personal needs and budget. Together, you can create a well-thought-out list of financial obligations and goals and determine how much life insurance can protect loved ones.

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