It's not really about how much life insurance you need. It's how much money your family will need after you're gone.
We’re here to help you make important decisions about insurance planning to protect your loved ones.
The right level of coverage
When buying a life insurance policy, it's important to choose the right amount of coverage. You don't want too much, paying for protection you don't need. Nor do you want to have too little, leaving your loved ones under-protected.
Determine how much life insurance you need
There are two common methods for calculating the amount of life insurance coverage you should carry.
1. The “lump sum need” method calculates the amount needed to pay:
- Outstanding debts
- Funeral expenses
- Household expenses
- Emergency needs
- Educational costs
2. The “income replacement” method calculates the amount needed to replace a percentage of your income for a specific number of years, usually until your youngest child is out of college or until your mortgage is paid off.
In addition to these two methods, you may want to consider other needs. For example, would you want to provide the financial means so your spouse wouldn't have to work for the first year after your death?
Calculate future spending
In determining your family's future financial needs, remember that you don't have to provide 100% of the income that will be needed. For instance, if you're planning to provide $100,000 for your child's college tuition in 15 years, you don't need $100,000 now - you need an amount that will potentially grow to $100,000 by the time college starts.
Having your policy's cash value potentially grow over the years to cover future expenses is one big advantage of permanent life insurance.