How Much Life Insurance Do I Need?
Determining the amount of life insurance you need is not a precise process. It is based more on your ideal financial legacy. Ask yourself: How much money will my family need to maintain their standard of living over the long run?
If you have dependents, the rule of thumb is you will need 12-14x your income to replace your financial stream.
Life insurance proceeds can help pay immediate expenses including uncovered medical costs, funeral expenses, final estate settlement costs, taxes and other lump-sum obligations such as outstanding debts and mortgage balances. They can also help your family cover future financial obligations like everyday living expenses, money for college or your spouse’s retirement, and so much more.
Capital Needs Analysis
The most common way to determine your life insurance needs is by conducting what’s called a Capital Needs Analysis. Here’s how it works:
- Evaluate your family’s needs.
Gather all of your personal financial information and estimate what your each of your family members would need to meet current and future financial obligations. - Tally up resources.
Assess all of the resources that your surviving family members could draw upon to support themselves. - Calculate the difference.
The difference between their needs and the resources in place to meet those needs is your need for additional life insurance.
This may look simple enough, but calculating one’s life insurance needs can actually get pretty complicated.
Find out how much you need using the Life Insurance Calculator or contact Set for Life Insurance.