How Much Insurance Do You Need?

This is the most basic question that you should ask when buying your term insurance policy. Although it might seem like a simple answer, most of us will find that over the years this is the one question that will continually pop up in your head as you question the decision that you made many years before about choosing how much your death benefit will be to your family once you are gone.

The problem with determining this figure is that it is extremely subjective. There are no hard and fast rules about how much you think your family will need when you are gone. There are some places that recommend you get term insurance coverage that is at the very least 10 times your yearly income just to be on the safe side. Some places even set the minimum requirement to at least 15 times your yearly income. The levels are very subjective but we will hopefully be able to help guide you in making the right decision with the pointers that we have below.

The very first question that you have to answer is if you actually need life insurance or not. We have found that some people who in our view have little or no reason to have life insurance actually have a policy out for hundreds of thousands. If you are single and have no dependents then you really have no reason to waste your money in buying life insurance. You should however set aside some cash simply to cover funeral costs, you don’t need insurance for that. Don’t let some distant cousin have to fork out cash just to put you to rest, at the very least, its rude.

You must also think of why you are getting you life insurance for your family. There are basically two camps on this. You can either be of the view that your life insurance policy is just to help your family members through the difficult time and cover some expenses or you can be of the view that your life insurance policy is to cover your family’s financial needs until they too pass away. As you can see both requirements are worlds apart, one needing only a small policy while the other can be a policy that is huge. You must decide if your family is able to live without your income. If the answer is “No” then you must be ready to cough up that extra premium to make your death benefit big enough to sustain them. If you feel your family can do fine financially without you then you can be safe with a small term insurance policy. It’s all really about how much you think your family will need, you need to make the judgment call on that.

Most jobs will also offer you a certain level of life insurance coverage; however these are more for work hazards and can’t really be counted on if you suffer from diseases or illnesses. It is important that you don’t rely on these insurance products too much. You can very easily lose your job in this market environment and subsequently also lose your coverage. It is also very likely that you will get fired if you have a disease that will render you unable to work and thus also lose your term insurance coverage.

You will also have to look at the other sources of your family income. Is your spouse working? Should you also purchase life insurance for them to supplement yours? These are all valid questions that you have to answer and will also determine your level of term insurance that you want. Naturally if you are the only source of income then you should have a policy that pays quite a bit more. If your spouse is also working and bringing in a large portion of the family income then you should also have them take out a life insurance policy so that their income and contribution to the family is maintained even if they die.

Another factor that you have to consider is where you are in life and the ever increasing needs of your family. As you progress through your career, your income is slowly increase over time, that being the case by right, your policy should also reflect the increasing income and standard of living over time. There are basically two main ways you can deal with this. You can overestimate and buy a policy that you slowly grow into or you can change your policy to suit your life changes every so often. Both options have drawbacks, overbuying means that you will be paying a little too much for what you need. If you however change your policy regularly then there is also a higher possibility that you could grow sick and risk your rates going through the roof if you choose to increase your coverage for the coming period.

Overall, there is no hard science to determining how much life insurance you really need. It is a very personal matter as only you know the true circumstances that your family and life are in. Most people’s objectives are to at least maintain the lifestyle that they have if one of the income sources disappear. It is at least appropriate to have your life insurance amount sufficient that there be no need to change jobs or aim for a higher income just to maintain the level of expenses.