How Much Life Insurance Do I Really Need?

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  • Post last modified:October 2, 2019

Well, today we will discuss a frequently asked question: how much life insurance do I really need?

Let’s clear one thing first, in this article you will show you the path to calculate the coverage you need.

We suggest buying coverage 10 – 15 times your annual income.

For example, let’s assume your monthly salary is $5,000 and you earn $60,000 per year. (We are not taking bonuses in account).

So, you can buy a life insurance with coverage $60,000 x 10 = $600,000 to $60,000 x 15 = $900,000.

It is just a basic idea we all try to follow, but, there are lots of things associated with it.

Let’s dig in…

Do You Really Need a Life Insurance?

It is the first and the most important question to answer.

Honestly, you don’t need life insurance in every situation.

You don’t need a policy if you are

  • Financially solvent.
  • Has no mortgage or loan.
  • No dependent family member.
  • Has enough cash or property.
  • Already has money for funeral expenses.

Let’s consider the opposite story. You are married and have a spouse, children who are dependent on your income. Moreover, you have a loan and a mortgage to pay.

In this situation, if any unexpected happens, your family will be in big financial trouble.

To get relief from such situations, you must consider buying a policy.

Of course, buy it today. With each day/year passing by, the premium will increase. We all know age is a big factor in the term of life insurance.

Is the Coverage of 10 to 15 Times of Annual Income is Correct?

choosing the right coverageChoosing the right amount is like playing Chess. If you do right, you will definitely win.

At the beginning of the article, we said that we are giving you just a basic idea. There is no rule of thumbs.

Each and every person has diverse needs and we have to calculate accordingly.

It’s always not necessary that you have to buy 10x – 15x of your annual income. If you have other assets that can give financial support to your family then you don’t need to buy big coverage.

You must reminisce that the bigger the coverage the higher the premium is. Hence, we suggest choosing the most efficient coverage amount.

Let’s Consider 2 Scenarios Here

Scenario 1:

Mark has two children and a wife living in his own house. Mark earns $70,000 and his wife $65,000 yearly.

There is no mortgage for the house and he has a good amount of savings in the bank. An only headache for them is the educational cost for their children.

So, if mark buys only 7x of his annual income ($490,000), it will be enough to cover the education expenses of his children.

By doing so, he could save a big amount in premium as the coverage is decent and realistic.

Scenario 2:

John has one child and a wife living with his parents. He earns $90,000 annually and his wife doesn’t work.

He bought a house that has a mortgage. In such a situation, John must buy a huge amount of coverage to fulfill all his family needs.

Here he may consider 17x of his annual income ($1,530,000). Moreover, for his parents, he could buy senior life insurance at a lower price.

How Long a Life Insurance Term is?

It also depends on your financial condition. Generally, we see most of the people are worried about the mortgage.

If the only issue is a mortgage, you should definitely choose a term policy of 15-20 years that can cover the expense of the mortgage.

Let’s say the mortgage amount is $950,000. So, if you take a term policy of 20 years, with coverage of $100,000 will be enough for you.

Because, you are already paying the monthly payment for your mortgage, so, by 20 years you will almost pay all the installments of the mortgage.

If any unexpected doesn’t happen within these 20 years, you will get the policy’s benefit which you can use to cover your other expenses as you have already paid the mortgage installments.

How Debts Affect Your Life Insurance Policy?

Debt has a very close relationship with the coverage amount.

We see most of the people are worried about their debts and mortgages.

Hence, it is a must to consider debts amount in life insurance coverage.

Death doesn’t end your liabilities. Death is really hard and can destroy a family. No one wants to leave the financial burden on their loved ones.

Do I and My Spouse Need Life Insurance?

The truth is both of you need a policy. In this modern era, we see husband and wife have separate financial liabilities.

Both of you work, to make your life easier you two can buy a policy.

Moreover, joint policies are cheaper than traditional policy. Risk factors are divided into two, hence, insurers offer lower premiums when you get a joint plan.

How Much Life Insurance for the Seniors?   

Most of our clients are seniors, so, we decided to put this section in this article.

It is always good to get life insurance at a younger age. But, if you were not aware at that time, you can be now.

Depends on age

Let’s say you are 80 years. At this age, you may still have some debts on you. So, your plan should be enough to cover the debts, funeral and medical expenses.

The situation changes when you are over 85. There is life insurance for seniors to cover some special needs. However, seniors don’t need $1M in coverage. Covering the funeral and medical expenses could be good enough.

If you want to leave some extra money for your family, you can consider that as well.

The average funeral cost in the USA is around $10,000. So, buying a $15,000 coverage is good enough at a senior age.

Why Buying Life Insurance Today?

We all want to save money and this is the reason. If you buy a policy today you are 1 day younger than tomorrow.

Yes, a policy works like this.

A day or month matters a lot when you are considering a policy. It is always wise to buy a policy earlier possible. If you could buy it today then do it. But, don’t forget to do the proper research.

Coverage analysis and choosing the right insurer are the two most critical parts.

Linda Chavez

I'm a burial & senior life insurance expert, independent agent, Founder & CEO of Seniors Life Insurance Finder. I have been working in this sector since 2004 and established my own company in 2014. I have a team of seven members, and we are trying hard to share the knowledge we've gathered. We know how difficult often it is to find an affordable policy. Hence, we are doing our best to help you.