How much life insurance should you have?

Even if you’re not always here for your loved ones, life insurance can offer a way for you to continue to take care of them even after you’re gone. Deciding how much life insurance you need is unique to each person, but there are several factors that can help you estimate the amount of coverage that can best meet your goals.

Final expenses

Along with the emotional distress of losing a loved one, paying for costly funeral expenses can add to the hardship, especially if your family does not have the savings to do so. On average, a funeral costs around $8,000, and can quickly increase with additional items and services. With life insurance, your family can rest assured that these expenses can be covered by the benefits of your policy. To help estimate how much will be needed for final expenses, think about your preferences for burial/cremation, cemetery plot, and memorial service.

Supporting your family

If you have a family or other loved ones who depend on you, you may be considering life insurance to help create a financial safety net for the future. When determining how much life insurance you may need, think about the cost of caring for your dependents, such as your children or parents. This includes the amount of money they would need to cover daily living expenses, like utilities, groceries, and medical costs, and perhaps nonessentials like vacations. To begin estimating the minimum amount of life insurance you may need, thinking about these questions can help get the ball rolling:

• How many years will my family need my financial support?
• How much income would I like to provide after I’m gone?
• How much would I like to provide for childcare?
• How much outstanding debt would I like to pay off?
• How much do I want to put into an emergency fund?
• Would I like to provide college funding for my children?

Tackling debt

If you have outstanding debt, your family may become responsible for paying down these amounts after you die, so this can be an important factor in calculating how much coverage you need. Debts can include credit cards, car payments, mortgages, student loans, and any other personal loans you may have. With life insurance coverage in place, your beneficiaries can use the benefit amount to help pay off this debt.

Paying for college

When deciding how much life insurance coverage you may need, you may want to consider the cost of sending your children to college. Tuition can be one of the largest expenses your kids will have, where the average in-state tuition at a public 4-year institution costs over $9,000 per year. This does not include additional expenses and costs of living, like books and supplies, room and board, and transportation. If your kids plan to attend college or a trade school, or are currently enrolled, you may want to include these amounts when determining the amount of coverage that is right for you.

Your age and health status

Your current age and health are commonly determining factors when deciding the type, amount, and cost of life insurance coverage. Typically, life insurance rates increase as you get older, since as you age, there’s a greater risk of death. This can be a good thing to keep in mind when deciding the best time to consider buying a policy. Certain pre-existing health conditions, like high blood pressure, diabetes, and high cholesterol, may also impact your eligibility and rates. Overall, the younger and healthier you are, the more affordable it usually is to get coverage, so don’t delay if financially protecting your family is at the top of your list.

The cost of life insurance

If you research how much life insurance coverage is recommended, you will likely see that many experts suggest estimating six to ten times the amount of your annual salary. This rule of thumb can offer a good starting point, but remember that since your individual situation is unique, you will want to consider all the factors that pertain to you. A financial professional can be very helpful in determining the type of life insurance and coverage amount that can meet your needs and budget. Together you can create a well-thought-out list of your financial obligations and goals and determine how much life insurance can ensure your loved ones are protected.