insurance

How do I: Determine how much life insurance?

Topic: INSURANCE
Who is affected: COUPLES & MARRIAGE, STARTING OUT, PARENTHOOD
DEGREE OF DIFFICULTY: Moderate
What you'll need: ANNUAL SALARY

What you need to know

The main consideration when deciding how much life insurance to buy is: How much will it take to meet your loved ones' needs should you pass away?

Every family is different, and will have different needs in the wake of a breadwinner's demise. Here are some questions to help you decide how much coverage to carry:

  • How long will your family need financial support? Want to make sure your children are taken care of into adulthood? The younger your children, the more you'll need. If you're the sole breadwinner, take that into consideration. Think it'll take a spouse five years to get a new career off the ground to replace your income? Plan accordingly.
  • How much income will you need to replace? How much money does your family need to cover expenses on a yearly basis? Your current salary is a good guide to how much your family needs to get by, but don't forget future expenses like education, retirement and medical expenses.
  • Do any of your dependents have chronic health problems, special needs or disabilities? Dependents in need of long-term care will need a corresponding amount of financial support.
Step-by-step
There are two basic approaches to deciding how much coverage to carry:
1. Multiply your salary by the number of years you think your family will need.
2. Choose an amount that would provide enough to support your family into the future.
Once you've decided which approach is right, use the work sheet "Shopping for life insurance" to help find the perfect life insurance policy.

 

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