How Much Life Insurance Do I Need? (How to Calculate Your Life Insurance)

If the last few years have taught us anything, it’s that the future is uncertain, and it never hurts to plan ahead.

This is especially true when it comes to life insurance. There’s no telling when any one of us might kick that proverbial bucket, so getting a plan in place is essential to keeping your family protected. Beyond that, it can be an essential part of any lifetime financial plan.

But just how much life insurance does a person need? Let’s find out.   

Who needs life insurance?

The whole point of life insurance is to protect the people that depend on you. Whether it’s your spouse, your children, or even elderly dependents, life insurance provides income to the people you love most in the case that something happens to you.

You have to ask yourself: If you die and lose your income, who is going to take care of your family?

What does life insurance pay for?

The payout from a life insurance policy can be used in a lot of different ways, including:

• Paying for your funeral and burial costs
• Covering your outstanding debts
• Providing supplemental income to your spouse
• Paying for children or grandchildren’s college expenses

With some life insurance plans, it is even possible to get coverage for long-term care should you ever need additional care.

How much life insurance do I need?

There are three common strategies to calculating your life insurance needs:

Strategy 1: Multiply your income 10x

This is one of the older “rules” on the books, but for many people it can still hold up as a starting point. A life insurance payout that is 10 times your income should be more than enough to cover your final expenses, and quite possibly enough to help your family get by after you’re gone.

The problem with this strategy is that it doesn’t take into account the unique, personal factors. For example, it doesn’t look at your total savings, other insurance policies, or additional dependents you might have.

Strategy 2: 10x your income, plus $100,000 per child

If you already have children, then you might already be dreading the inevitable costs of putting them through college. Well, imagine how much harder it will be for them to pay for it without your help.

Adding $100,000 per child to your life insurance policy is a good way to plan for the specific costs of college tuition.

Strategy 3: Use the D.I.M.E. formula

The DIME formula is an effective method because it takes more details into account. The DIME acronym stands for Debt, Income, Mortgage, and Education. By examining each of these factors independently, you can arrive at a more accurate, well-researched life insurance plan.

• Debt (Including Final Expenses): Combine your estimated funeral expenses with any outstanding debts that you might have.
• Income: Consider how many years your family will need a supplemental income to get by in the case of your death
• Mortgage(s): How much you need to pay off your current mortgages
• Education: Estimate how much it will cost to get your kids through school or college

When you combine these 4 estimations and then subtract your current assets, you’ll have a much better idea of how to plan for life insurance.

Term life insurance isn’t that expensive, especially if you’re under 55

The truth is, term life insurance plans aren’t nearly as expensive as people think. If you and/or your spouse is under 55, it’s possible to find term life insurance plans for as low as $28 per month for a $250,000 policy.

We have access to the lowest life insurance rates on the market

If you’re looking for a quicker way to find the best life insurance policy, give us a call. Your Personal Benefits Manager is equipped with both the training and tools needed to find the best plan for your situation.

All it takes is a free, no-cost consultation, and you’ll be on your way towards a lifetime of reliable protection. Call 800-913-0172 to get started, or click here to run an instant quote.

Click here to schedule an appointment, or call 800-913-0172 to get started.    

To your health and wealth,

Wiley P. Long, III
President - HSA for America

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