Determining Life Insurance Needs

There is no magic formula to determine how much life insurance you should have; however, there are a number of factors that should be considered when estimating how much life insurance you should carry.

They include:

  • Final Expenses - These could be unpaid hospital bills, funeral expenses, unpaid debts, probate costs, and estate and inheritance taxes.
  • Readjustment Fund - This may be used to cushion the immediate lifestyle adjustment that a family must make when a loved one dies. The family may be forced to move, or the surviving spouse might have to look for a new job. In addition, a working spouse  may find it difficult to return to work immediately after the death of a partner.  The readjustment fund allows for adequate bereavement due to loss.
  • Supplemental Income - After the readjustment period, there should be a consistent income stream to help pay for the family's living expenses, such as mortgage payments, monthly bills, and daycare.
  • Educational Funds - Adequate funds should be available for the childrens' education. This might include elementary school, high school, and college.
  • Retirement Fund - There should also be adequate funds available to ensure that the spouse can retire comfortably.

These are some factors that you should consider carefully when estimating how much life insurance you need. Everyone's life insurance needs are different but, in general, an individual's needs are greatest from the time they start their careers or a family until they reach retirement, at which time many individuals' needs for life insurance diminish. It is important to remember that you should review your life insurance needs annually to account for changes in your family's lifestyle. Use our  life insurance needs calculator to help you estimate how much life insurance you require.