How Much Life Insurance Do You Really Need?

One of the most important things you need to figure out when shopping for life insurance is how much do you really need.

How much is enough? $10,000? $500,000? $1,000,000?

If you’re shopping for life insurance, you’ve probably asked yourself this question. In this article, we’re going to provide some guidance to help you answer it. We’ll also share some great tips on how to figure all this out.

How Much Life Insurance Do You Really Need?

At the end of the day, you will need enough life insurance to provide coverage for your financial obligations in the event of your untimely passing. So the best way to calculate how much you really need is by looking at your current budget and expenses. And, of course, look at your financial assets/resources as well.

Start by calculating your long-term financial obligations. After that, you can start subtracting your assets. You also need to take inflation into consideration. The remainder of that calculation is the gap that your chosen life insurance policy will have to fill.

Factors to Consider

We’ve given you the basics above, but let’s dive deeper. Here are some examples of financial obligations that you want to cover:

  • A mortgage
  • Income replacement
  • Large debt
  • Tuition fees for your children

Now here are some examples of what your existing assets could be:

  • Existing life insurance
  • College 529 savings
  • Life savings or any savings
  • Funeral expenses

Naturally, there’s no way of knowing exactly how much life insurance policy you should buy. This is made harder because, if you’re young, it’s hard to estimate what your expenses will be the older you get.

Of course, buying extra insurance later on is another option. However, it is not ideal for some people. This is because adding a new policy or a top up for your life insurance will be based on your new age and your health condition.

And as we have already mentioned in other articles, the monthly premium for life insurance policies increase as you age. It is also possible that you may develop health conditions that will make you uninsurable.

In this case, you will no longer have the option to add extra insurance. Therefore, it is always best to calculate how much life insurance you need on the first go.

Having a financial advisor by your side will also help as you shop around for life insurance. Financial advisors are there to help you see the bigger picture in your financial situation. They also give sound advice as to where you should plan to be in the future, financial-wise.