Life Insurance – How Much to Buy

How Much Life Insurance Should I Buy?

The answer to the question of “how much life insurance should I buy” is “as much as you need”! It all depends on what you are buying the insurance for. If you have no dependents, and already have enough put aside to clean up all of your debts and pay final expenses, then you might not need any insurance at all.

If you are buying insurance to provide for dependents, then you need to do some calculations. This might be a task for a financial planner, or there are some good calculators out on the web. You need to calculate what you have already and how much will be needed. The difference is what you need for insurance.

Start with looking at your obligations.  All will have to be paid off at your death. Add in your mortgage, car loans, credit cards and other loans.  Compare your debts to your assets and other family resources.  For example, if your spouse has a good job or savings, then maybe they can assume or cover your debts.

Then look at income replacement.  If you supply the primary income for your family, then calculate what will be needed for a replacement … well we know that you can’t be replaced but we’re talking about income replacement.  This number is often surprisingly high.

And finally, add in any future obligations.  Will your kids need any money for college?  Will your pension stop if you die leaving your spouse high and dry?

As you tally these figures, keep in mind that you are looking to insure your financial loss.  Your death will bring a loss that no amount of insurance will be able to replace.  Insurance only covers the financial part.