Life insurance is an important tool for planning ahead, ensuring you and your family are covered for all contingencies. For example, what happens if you or your spouse die prematurely, or (heaven forbid) if both of you die at once? By having a life insurance policy in place, you can be confident that your surviving loved ones will have the resources needed to pay for your funeral and burial, and to supplement any lost income.
One of the tricky parts about buying life insurance is determining how much to buy. Your independent insurance agent can provide you with some insight, but truthfully, the recommendation will vary from person to person, depending on the size of your family, the scope of your financial obligations, and other factors.
Calculating Your Life Insurance Needs
The rule of thumb that most insurance agents recommend is that you buy 10 times your annual income. This will often prove to be roughly enough to cover end-of-life expenses and to ensure your surviving family members are taken care of for a good long while.
Alternatively, some agents will recommend 10 times your annual income, plus $100,000 per child. This additional funding is intended to cover the cost of college tuition, though of course, this can be variable depending on the institution, scholarships received, etc.
Additional Factors to Consider When Buying Life Insurance
Some additional considerations that may impact your life insurance coverage include:
- Debts. Life insurance may be used by your heirs and survivors to pay off any debts you leave behind, whether that’s student loan payments, car payments, credit card debt, or your mortgage. If you have significant debts, make sure your life insurance can cover it.
- Inflation. One of the main reasons for getting life insurance is to replace any lost income your family experiences as a result of your death. That’s where the income-times-10 rule comes into play; if you make $40,000 annually, you’ll likely want your insurance policy to account for $400,000 at a minimum, the equivalent of a decade’s income. But there may also be some room to consider wage inflation; for example, it might be wise to round up to $500,000, anticipating rising costs.
- Family size. Life insurance is largely meant to provide some stability for the family members you leave behind. As such, the size of your policy can be informed by the size of your family, and by your role within it. You’ll likely need more money for a family of five, as opposed to a family of two. And you’ll likely want more coverage if you’re the breadwinner; by contrast, while losing a child is obviously devastating, it may not represent a big financial hit to your family. As such, it’s usually not necessary to cover children, beyond possible funeral expenses.
Get Professional Guidance
As you consider your life insurance needs, make sure you get advice from a qualified, independent agent. Contact our team at Sentinel Insurance Advisors whenever you’re ready to discuss your life insurance needs.