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How Much Life Insurance Should You Really Have?

by Scott G on August 24, 2013 · 3 comments

 Suze Orman or Clark Howard recommend life insurance amount coverage

How Much Life Insurance Do You Need in 2014?

When shopping for life insurance one of the most common questions people have is; how much life insurance do I really need to protect my family?  The truth is the amount will vary for each person since every family and situation is unique.  However, there are general rules of thumb the experts use when working with their clients in 2014.

Rule of Thumb

Many financial advisors recommend having a minimum of at least seven (7x) to ten times (10x) your annual salary in total life insurance.  For example, if you make $50,000 a year, you should have at least $350,000 to $500,000 of life insurance in-force.  Financial and consumer expert Clark Howard generally recommends 10x your annual salary in life insurance while the famous financial advisor Suze Orman says you should have 20x your annual income in a death benefit amount. 

Tailor Your Coverage Amount

While using the above rule of thumb is a terrific way to quickly estimate your ideal coverage amount for your life insurance policy, to be even more precise you can use a life insurance needs calculator, such as the one from Life Foundation.  This will tailor your coverage for your situation, taking into account your; number of children, their ages, college funding needs, final expense costs, outstanding debts such as a mortgage and even the amount you have in savings and investments.  Each family is unique in regards to their incomes, debts, children’s ages and future income goals so it is best to take all of this into consideration when choosing the right amount of life insurance to protect your family.

Summing it All Up

Whether you use the general rule of thumb of seven to twenty times your annual income in life insurance-depending on your needs or you choose to be more precise by using a life insurance needs analysis calculator, the bottom line is you want to have a policy that will adequately protect your family in the event you could no longer provide for them and to leave them with a lasting legacy of love from you.

http://www.lifehappens.org/wp-content/uploads/2011/09/life-infographic.png

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{ 3 comments… read them below or add one }

Lyndsay with LOGiQ3 August 26, 2013 at 3:16 pm

While the rules of thumb differ, it’s important to keep in mind that memorial services, like so many other things in life, can end up costing more than initially planned. There are a lot of ways these things can go wrong. In a time when your loved ones will already struggle, do you want to add to these stressful times?

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Scott August 29, 2013 at 8:34 pm

Great point Lyndsay.

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Life Insurance Calculator August 28, 2013 at 9:56 am

I do agree that 7-10 times your income may be a good starting point, but there are times where a family may need at least 20 times the main breadwinners income in life insurance, especially considering the low rates of return on conservative investments these days. It may be worth the few minutes it takes to use a free life insurance needs calculator online to figure out an accurate estimate of your true life insurance needs.

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