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How Much Life Insurance Do I Need?
"Price is what you pay. Value is what you get." —Warren Buffett
Life insurance is a perfect illustration of the difference between price and value. With policies that cost less than your monthly cell phone or cable bill, it's hard to compare what you pay with what you get. Your family is protected, your finances are secure, and you get peace of mind. Now that's value.
When it comes to deciding how much life insurance coverage you need, the answer isn't going to be the same for everyone. It depends on your family, your job, and your finances. Luckily, we have two quick and easy ways you can estimate the dollar value of coverage you need:
- Use our easy life insurance calculator. Plug in a few numbers, and away you go!
- Learn what your policy should cover, what experts recommend, and use your own figures to arrive at a customized estimate. The information on this page will help you do just that.
Once you've figured out how much you need, you can get a fast, free quote that tells you just how affordable that policy can be. For more than 4 decades, Trusted Quote has helped half a million American families protect themselves with life insurance. If you're ready to join them, click the orange button for your quote or read on to estimate how much coverage you might need.
Click Here for Life Insurance Quotes!
Method 1: Quick & Dirty
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Do you need $100,000, $500,000, $1,000,000, or more?
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If you're looking for a ballpark figure, there's a quick way to get one. Simply take your annual income, and multiply by 8 or 10. This isn't a failsafe, and it's possible that this number will be either too much or too little, depending on your health and financial obligations. But it's a way to get the ball rolling if you're curious.
Sample annual salary: 50,000
Multiplier: x 10
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Estimate: $500,000
This doesn't take any specifics into account, such as your debt load or the need for a spouse's future healthcare. For a more detailed (and more accurate) estimate, we suggest using Method 2, below.
Method 2: Precise & Detailed
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Estimating your family's financial needs is the first step in planning for the future.
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If you want a more accurate quote, you need a thorough estimate of your life insurance needs. To get there, you need to know a bit about what life insurance is meant to cover. Then, you'll need to estimate those costs based on your financial future. Here are the main categories of expenses you want your insurance to cover:
- Funeral and burial expenses. These aren't cheap, we can tell you that. The average cost of a burial and funeral these days is between $8,000 and $10,000. The National Funeral Director's Association estimated the average cost to be $7,755 in 2009, and costs have only gone up since then). Kiplinger.com suggests you pick an even higher amount, about $15,000.
- Debt. What large debts do you have? Many people want their life insurance to cover the rest of their mortgage, any remaining student loan debt, any personal loans, credit card debt, or car loans.
- Income. Remember, the purpose of life insurance is to help your family get by if you're not there to help support them. How much of your family's income do you provide? What do you want them to be able to afford in your absence? If you don't want enough coverage to pay off the mortgage, for example, how many months or years' expenses do you want to leave your family? If you want a policy large enough to pay off all your debt, Kiplinger suggests providing about 50% of your pre-tax earnings to help with the day-to-day bills (gas, food, utilities, etc.).
- Financial obligations. If you have kids, are they college-bound? Do you want your death benefit to help fund their educations? If you have elderly parents, do you want their care to be paid for if you pass away before they do?
Some of these issues might take you awhile to sort through. You may never have thought about whether your two-year-old is college-bound, and if so, how much tuition might cost in sixteen years!
It takes guts to plan for a life you might not even be there to see. But the people who plan...and act on that plan...are rewarded with peace of mind and their family's financial security. Is your family's future worth an afternoon with the calculator?
To help you get started, here's an example of how to estimate the costs described above:
- Planned funeral expenses: $10,000
- Remaining mortgage: $120,000
- Credit card debt: $2,500
- Student loan debt: $6,000
- Income replacement: $30,000 per year for 30 more years: $300,000
- Child to college: $2,500 per year for two years of community college, $12,000 per year for 2 years at a public institution: $29,000
- Grand total estimate: $467,500
Based on these financial obligations, the family in this example might want to get a quote for a $500,000 life insurance policy.
Is there such a thing as being overinsured?
As a matter of fact, there is. Check out our video to find out whether you fall into that category:
We hope you can now answer the question, "How much life insurance should I have?"
To get a free, no-obligation quote, just click the orange button below. If you want to talk to a real, live person during the process, you can always call us at 800-823-4852. We're happy to help!
Click Here for Life Insurance Quotes!
Sources:
NFDA.org: Funeral Trends and Statistics
USAToday.com: Average Cost of Four-Year University Up 15%
WBUR.org: Students Tackle High College Costs by Starting at Community College
Hi, I’m Ryan Pinney. As a Chartered Senior Financial Planner, I’ll help protect your family’s financial future. I believe in ethical insurance solutions based on your needs. Welcome to Trusted Quote, your source for insurance and financial planning.
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*Comparison of each carrier’s best published rates for a
10-year level term policy, 30-year-old non-smoking female
^Represents 10-year level term life insurance rates for 40-year-old female,
in good health, no tobacco, residing in Ohio.
R. Jan Pinney CLU, ChFC is a licensed life insurance agent in all states and the District of Columbia. The following agent license numbers are provided for R. Jan Pinney as required by state law: CA agent #0440057, LA agent #291116, MA agent #1674866, MN agent #20270113, UT agent #58330, agent R. Jan Pinney, DBA Pinney Insurance Services. Commercial use by others is prohibited by law. This site provides term quotes. Each rate is a quote based on information provided by the carrier. No portion of Trusted Quote may be copied, published, faxed, mailed or distributed in any manner for any purpose without prior written authorization of the owner.
