How Much Life Insurance do You Need?
Life insurance is available in all metaphorical shapes and sizes -- and there is no "one size fits all" with life coverage. You need to look at you family's needs, look at your own debt, consider any unmet costs, and plan for the worst. Below, we'll take a look at the above four points step by step, so you can calculate exactly how much life insurance you need.
No matter how much life insurance you want, we can help you get it. Request a quote today!
Four-point Equation for Determining Your Life Insurance Benefit
Look at your family's needs. Your family's needs will vary as time changes, but you can get a good sense of this line-item by taking a sum of all your family's monthly expenses (minus mortgage and loan payments, if you have them) and multiplying it by 60 to get an estimated five-year number. This amount should provide your family with enough cash to survive for five years without your income. My number: 1,800 x 60 = $108,000
Look at your own debt. According to USA Today and Bankrate.com, the average American family is $84,454 in debt, and those are numbers from 2006 -- imagine what the credit crisis could do to your family! If you have a mortgage, your debt could be larger -- in fact, you're probably looking at an average balance around $181,225 if you have a mortage! That's a lot of debt to saddle your family with! To get this number, add up all of your credit card and mortgage balances. My number: $248,000
Consider any unmet costs. Say your kid wants to go to a private college; or your wife needs dental work (like really bad); or maybe you always told your daughter that you'd buy her a car when she turned 16. Think about all of these "unanticipated" costs and -- well -- anticipate them. My number: $40,000
Plan for the worst. Much like number three, this item relates specifically to the things that you can't foresee. What if you live in an earthquake zone? Do you think there should be a cushion there in case your house is leveled. Maybe you want to include extra money for earthquake insurance instead. What if your family is hit with a lawsuit related to your business or property? As they say in the boy scouts: "Prepare for the worst." Always include a negligible cushion for these unforeseeable events. My number: $100,000 safety cushion (for earthquake hazard)
Down into the details
Of course, there are numerous other expenses for which there's no way of knowing.The average cost of a funeral is anywhere from $5,000 to $15,000, depending on which kind of funeral you have planned in your will. I've personally tacked on $4,000 for my own funeral, because cremation is a very valid option for my own personal needs.
Upon summing everything up, I come to a personal number of $500,000 -- which provides for my mortgage, burial expenses, monthly costs for five years, and a $100,000 cushion in the event of an earthquake. Your own target may vary and you should use the equation above to get a simple estimate. Please note: you may want more or less of a cushion depending on your own needs. Tax advantages are substantial for life insurance if you're wealthy.
Don't know how much life insurance you want? Request more information and we'll help.