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.
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.