How Much Life Insurance Coverage Do I Need?

You should have enough coverage to pay off your debts, replace your lost income, and provide enough money to take care of your loved ones.  Some people also add in the cost of funeral services.

How Much is That Exactly? There is NO Easy “one-size-fits-all” Answer. 

Many life insurance companies provide a calculator to help you try to figure out the answer. There are also recommendations that you should carry a multiple of your income.  For example, 20 times your annual salary. But —the truth is— there is NO easy “one-size-fits-all” answer, because Life Insurance is not a “one-size-fits-all” product.

There is a WRONG Answer, though. And that is to “Buy Nothing”. So… We Recommend You Buy Only What You Can Afford!

BUY ONLY WHAT YOUR BUDGET PERMITS

Write down your budget

Make sure you can afford this cost not only now, but for as long as you could be potentially paying the bill for.

Figure out how long you need the life insurance for

It is very important not to fall short.  You do not want your policy to expire in your 80’s or 90′ s and still need it.  Even if you are healthy enough to get new life insurance at that age, it will be very expensive.

Buy only what your budget permits

Buy as much life insurance as your budget permits over the length of time you need to have the coverage for.

It is possible this strategy might not get you as much life insurance as the calculator says you should have.  However, it is important to not make yourself “insurance poor”.  Buy only what your budget permits.  Remember, a percentage of something is always better than zero!

For Betty

I was not sure at first why my client really needed life insurance.  He was 46, not married and he had no children.  He was not buying a house or taking on debt of any type.  He was not a business owner who needed life insurance for business reasons. He had a good paying job and was consistently saving for his retirement.  It was not the typical “life insurance buyer” profile…

Christopher Lalor, “For Betty”

Then he told me about his older sister Betty who lived with him.  Betty was 12 years older than my client and was born with autism.  My client was very proud of his sister.  Despite her handicap, (Betty could not read, write, or count money)  she is physically able to work and has held the same job for the last 30 years.   She works 35 hours per week in the kitchen of the local private country club.  She takes the train to and from work every day.  In fact, she is the longest standing employee at the club!

My client was concerned about Betty’s financial security though. She would be okay as long as my client was alive and well to help her out.  But what if Betty outlived him?  Would there be enough money left behind to provide for her care?

In the end, my client set up a trust and bought a life insurance policy to fund the trust upon his death.  This way he could still continue to pay for his sister’s financial support, in case he died before her. Since that time, Betty has been well taken care of and will be for the rest of her life.