How Much Coverage Do I Need?

There are many Life Insurance websites featuring nifty calculators that allow you to enter a bunch of information relating to your income, debt, assets, and family situation, then spit out a precise number equating to the amount of life insurance you need. Father-DaughterI just tested out one of these myself and the calculator told me I need $876,000 in coverage!

More than two decades of experience tells us that life insurance is a very personal issue requiring a lot more discussion and thought than an automated calculator can account for.

A very helpful rule of thumb that is much easier than a calculator and provides a good starting point is that 5 to 10 times annual income is generally the appropriate range for most individuals.

When it comes right down to it, the purpose of life insurance is essentially to replace income that youare bringing into the family to maintain that same quality of life if something happened to you.

The 5 to 10 times salary is a fairly big range, and inside of that range are many factors to consider:

  • Amount of Debt
  • Amount of Assets
  • Number of Children and their Ages
  • Other household income
  • Age of insured, or number of working years left

And possibly the biggest factor of all — that no calculator can determine — is your own personal preference or philosophies. You can read more about that here (link to blog Do you Need as much as you want or Want as much as you Need)

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