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How Much Life Insurance Do I Need

Getting the right amount of coverage is one of the most important parts of securing life insurance. To find the right amount of coverage, it’s important to understand what life insurance can be used for and how it can contribute to the long-term financial protection of your family. Read on to find your answer to the question: how much term life insurance do I need?

What Can Life Insurance Be Used For?

Life insurance is a simple method of providing a cash lump sum for your family when you pass away. There are many reasons that lead people to opt for life insurance protection. The reasons range from protecting their young family to providing for their spouse in old age. The best way to think about your coverage needs and how life insurance can help is to think about the current and future financial needs of your family. Here are some questions to ask yourself to determine how your death may impact your family financially:

  • Could your loved ones afford to stay in the family home?
  • Do you have debts that would negatively affect your loved ones?
  • Could they afford childcare costs?
  • Is your income needed for day-to-day living expenses?
  • Have you already saved enough to send your children to college?
  • Have you put money aside for the items you’d like to help you children pay for such as weddings and first home down payments?
  • Could your loved ones afford average funeral expenses of approximately $10,000?
  • Would estate taxes cause your family financial issues?
  • Would your spouse struggle financially while your estate goes through probate?
  • Would your spouse need help with medical costs?

Answering these questions can help you determine how much term life insurance you need. It will also help you understand both your existing and future financial situation and where the cash pay out from a life insurance policy could help your loved ones.

Life insurance can be used to not only protect your family from financial stress but also as a financial planning tool. In addition to the peace of mind that a life insurance policy can bring to you and your loved ones, it can also be used to as an estate planning tool to mitigate tax benefit costs. Think of life insurance as an umbrella to protect your family from financial strains when you pass away.

What Type of Life Insurance Do I Need?

Another common question about life insurance is: what type of life insurance do I need? There are two main types of life insurance: term and permanent (also called whole life). The main difference between the two types of insurance is the length of coverage. Term life plans offer coverage for a fixed period, which typically last between 10 and 30 years. If the insured does not pass away during the policy term, the plan does not pay out a death benefit. Whole life plans provide coverage for life, this means that as long as the premiums are paid, the policy is guaranteed to pay out a death benefit. You may think that it makes sense to choose the policy that provides the longest possible coverage but in many cases, this isn’t the best fit. Term plans are much more affordable, so if the expenses you’d like to leave coverage for only last for a set period of time, you may find better value from term with its fixed length plan. Another consideration is the amount of coverage you need. Term policies are generally much cheaper allowing you to get much more coverage for your budget. However, if your coverage needs last for the duration of your life, for example you’re planning for your end of life expenses, you should consider a whole life insurance plan. Our team of licensed agents is here to discuss your coverage options to help you get the best fit.

Determining Your Life Insurance Needs With an Insurance Needs Analysis
An Insurance Needs Analysis includes income and expense requirements to protect the income you (the insured) will earn between now and retirement. In addition, it calculates your net contribution to your family's current standard of living. This helps you determine how much insurance you should have available in the event the need arises.
To conduct your insurance needs analysis, start by gathering personal information including: age, income and assumptions, immediate cash needs, long-term income needs and available resources to apply towards your needs assessment.
Deciding Your Coverage Needs
If you don’t have time for a detailed Needs Analysis then know that it is often recommended that you purchase 8-10 times your current annual income. But this is a "how much life insurance do I need rule of thumb" that does not take into consideration current assets and any unique needs your family may have. Consider the following when making your final decision:
  • The amount of annual income needed to replace your earnings
  • The number of years that the current income will be needed
  • Other anticipated expenses:
    • Your mortgage and other debts
    • Funeral and final expenses
    • Retirement needs
    • College costs for your children
    • Other unique needs for children or other family members
Insurance Needs Calculator

Given your unique needs we suggest the use of our Insurance Needs Calculator to get a more accurate assessment than a simple ‘rule of thumb’.

It just takes a minute to use our Life insurance calculator to assess your needs
based on the personal and financial information that you gathered above.

Planning for your family's secure future is less daunting a task if you are prepared and understand your family's needs. Determining those needs and purchasing the appropriate amount of term insurance will allow you to have peace-of-mind and to enjoy life to its fullest. Calculate your life insurance needs and request a quote at IntelliQuote today to find affordable coverage to protect your family!