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Determining the Need for Life Insurance: How Much is Enough?

Client Centered

“You don’t buy life insurance because you are going to die, but because those you love are going to live.”

There are four different methods a client can use when determining how much life insurance a person might need. Here are those four methods:

  • Human Life Value: This method considers the economic value or human life value of a person to the family. The concept primarily considers the value of future income, expenses, liabilities, and investments. If your goal is to sustain the present lifestyle of your family in the future, then determine how much it costs in today’s dollar value. This will help decide the amount of cover that you should take.
  • Income Replacement: Under this method, it is assumed that life insurance should replace the lost earnings of the breadwinner. One of the simplest ways to calculate your income replacement value is: insurance cover = current annual income x years left to retirement.
  • Expense Replacement: Individuals need to calculate their day-to-day household expenses, loans and goals such as children’s education, as well as providing for financially dependent parents (if needed). The figure you reach is the total money that your family will need.
  • Rule of Thumb: This option is probably the easiest as it's simply 10 times your annual income. 

Whichever means you use to calculate how much you need, the idea is not to take food off the table. Make sure you calculate an adequate amount of life insurance that also meets the budget. 

If you need help determining the amount you need or ways to structure various types of policies to maximize your protection, schedule a time to talk. A short 30-min, no obligation phone call will help clear up a lot of confusion. 

We look forward to hearing from you.

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