Budgets and Money

Five Questions to Consider Before Deciding How Much Life Insurance You’ll Need

This article presents the top five questions to consider when deciding how much life insurance you may need and provides an insurance needs calculator to assist.

5 Questions to Consider Before Deciding How Much Life Insurance You'll Need

How much life insurance do I need?

For many of us, this is the million-dollar question when it comes to buying life insurance. Fortunately, there are ways to help you crunch the numbers and better determine how much coverage you may need to immediately meet your obligations and to replace your income upon your death.

One way is with a life insurance needs calculator. These online tools are a convenient, quick method for estimating how much coverage you may need. Another good plan is to meet with an insurance agent or financial advisor who can review your family's debts, assets, and financial goals, and provide you with a solid estimate.

But no matter which method you choose, there are many variables to consider that can make a big difference in determining how much life insurance to buy so you don't overestimate - or worse, underestimate - your needs.

The following are five questions to consider prior to plugging numbers into a needs calculator or when meeting with a qualified agent:

1. How much money would your family need today to live on if you didn't make it home from work?

Simply put, how much money would your family need each month/year to maintain their current standard of living? Begin by reviewing you monthly bank statements and looking at how much you actually spend each month - don't just guess.

2. What assets do you have now?

What's in your savings account? What about your investments (such as your 401(k))? Do you have any other life insurance policies? If so, what are the policy limits? You need to know these numbers. Consider your assets first, and then figure in your debts to get an estimate of “how much life insurance do I need?” You might find that you don't need to replace all your income based on these findings.

3. How much debt are you carrying?

Think about how much debt you're carrying - including your mortgage. If you have substantial debt, be sure to factor it into your life insurance calculation so that your family will have enough coverage to pay it off. Start by reviewing you monthly budget. Consider how long it will take you to pay off car loans, credit cards, etc.

4. Do you have a stay-at-home spouse?

The stay-at-home parent caring for young children is often seen as not needing life insurance. The fact is, even a stay-at-home parent who isn't drawing a paycheck may still need life insurance. Think about the estimated costs associated with having to hire a full-time caregiver for your children if your spouse should die.

5. Have you factored in additional expenses unique to your situation?

Many people become fixated on income replacement and forget to include additional expenses such as funeral costs, final medical bills, the cost of college, care for special needs children, or even funds for taking care of an elderly relative. Be thinking about the how much these additional expenses can add up and include them in your calculations.

These are just some of the questions to consider when estimating how much life insurance to buy. By doing a bit of homework and with a solid set of numbers in hand, a qualified agent can help you determine the best policy type for you.

Get more information on types of life insurance by visiting our learning center.

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This article is a high-level summary of things to consider when purchasing life insurance. The information presented is for information and educational purposes and meant to supplement other information specific to your situation. It is not intended as investment advice and does not necessarily represent the opinion of Protective or its subsidiaries.

Neither Protective life nor its representatives offer legal or tax advice. We encourage you to consult with your financial adviser and legal or tax adviser regarding your individual situations before making investment, social security, retirement planning, and tax-related decisions. For information about Protective life and its products and services, visit www.protective.com.

How Much Life Insurance Do I Need?

How much life insurance do I need? It is a common question when you start looking for life insurance, and figuring this out is the first step to knowing what type of coverage you may need and can afford. How do you know how much life insurance you need to buy? It can be tricky because everyone's needs are different; there isn't a standard measure to determine how much life insurance you need. Don't put off buying the life insurance that you need because you don't think you can afford it. There are many options available. For more information, visit our learning center.