How Much Life Insurance Do I Need? 6 Factors You Need to Consider

No two people are the same, so it makes sense that no one life insurance policy would fit every person. That means that choosing the right coverage amount is going to be different for everyone. So, how much life insurance do you need? 

The coverage that’s right for you is related to various factors, from income to debt to family size. To shop for a policy or purchase coverage, you first need to know how to calculate your life insurance needs. We’ve laid out six factors to consider.

Now, you may be wondering whether you need life insurance at all. Whether or not you have a family, everyone can benefit from the protection. In addition to common uses, like preserving your income, life insurance can be used to cover burial expenses, pay your remaining debts and even support charitable organizations of your choosing.

When you’re ready to purchase life insurance, reach out to Farm Bureau for professional advice to better understand your options.

Factor #1: Income 

How much money do you make? The amount you bring home plays a significant role in how your life insurance needs are calculated, since the goal of the policy is to provide a measure of stability and continuity to those whom you may leave behind.

As a rule of thumb, the more you earn, the more coverage you need. Insurance professionals suggest that a policy at least 10 times your annual salary is a reasonable amount for life insurance.

Factor #2: Debts 

Any life insurance policy you take out should be able to cover all your debts, because you don’t want to leave those behind for your bereaved loved ones to deal with. Take a moment to calculate what that means.

Think about mortgage balances, car loans, student loans, credit card balances or other debts that would be a burden to your family. A life insurance policy could help pay those debts in full. The more debt you have, the more coverage you may need. By covering the debts, you’re setting up your loved ones for the future.

Factor #3: Savings 

Reviewing your existing assets will help you determine how much life insurance you need. If you have significant savings and investments that can be used to cover burial or estate expenses, pay off debts and provide a financial cushion for your family, you’ll need less coverage than someone with fewer assets. Look at what you have in the bank and plan accordingly.

Factor #4: Existing Coverage

It’s possible to have more than one life insurance policy. That’s useful to keep in mind when you’re calculating the amount of your death benefit.

Many employers provide life insurance to employees, but often you can’t take that policy with you if you leave your job. After reviewing your employer’s coverage, you can decide whether you need your own personal policy.

Factor #5: Family Situation 

How big is your family? The more dependents you have, the more life insurance you may need. How many children should your policy provide for? How old are they? What needs will they have? A young child needs more coverage to support them into adulthood than a college graduate with their own income. 

Your family’s needs and how they’ll change over time should be part of your life insurance calculations.

Factor #6: Future Needs 

Life insurance helps protect your family. That means purchasing enough coverage for their future needs, including educational expenses and a spouse’s retirement. You can also benefit from unexpected uses of life insurance, including paying your children’s tuition fees.

How much do you expect it will cost to send your child to college? Use that number in your calculations. 

We’re Here to Help

Not sure how much life insurance you need? Our online calculator is a good place to start. When you’re ready to talk to a professional about protecting your family, reach out to Farm Bureau.