Why Get Life Insurance

The Cost of Running Your Life

Your income is one of your greatest financial assets. If you were gone tomorrow, would your family and loved ones have enough financial security to live comfortably? Income replacement provided by life insurance can provide peace of mind for you and your loved ones. 

Income Replacement and Life Insurance

The mortgage, car payments, utilities, groceries and gas... it seems to cost us more every year just to get out of bed in the morning. But despite their price tags, these and other necessary expenses are simply the cost of living and running our daily lives.

Today, it generally takes income from both spouses to cover monthly expenses. And if you're lucky, you'll have some left over to put away for an emergency and save for things such as retirement and college. But what if tomorrow one or both of your paychecks were suddenly gone? With a large chunk of your income no longer part of your budget, would you and the people who depend on you for financial support have enough to make ends meet?

The reality is that your income is one of your greatest assets. So what are you doing to protect it?

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The importance of income replacement

People don't often think about the immediate financial benefits that a life insurance policy can bring to a family when a loved one dies and a regular stream of income ends. This results in many Americans not only being uninsured, but considerably underinsured.

Income replacement should make up the largest portion of your life insurance policy. As a general rule of thumb, most financial professionals advise taking out life insurance coverage equal to five to 10 times your annual salary. 1So for example, if you're the sole provider earning $50,000 a year, you're looking at $250,000 to $500,000 in coverage, just to replace your income. Then, you'll need to factor in your total debts and a little extra to guard against inflation.

Keep in mind that this isn't a hard and fast rule, and you may need income replacement for a longer period of time. However, this simple formula can be a good place to start to see just how much life insurance you may need to replace your income and pay off your debts and final expenses. The important thing to remember is to look carefully at both your immediate and future needs. You can pencil these figures out yourself, or try using Protective's Life Insurance Calculator. Just enter your information, and what remains is your total estimated life insurance need.

Nothing can replace you when you die. But with the right amount of life insurance to replace your income, you'll have the peace of mind that comes from knowing that the people who depend on you for financial support can continue to keep the lights on, remain in their home, and plan for the future.

Do the Math

How much annual income would your loved ones need to maintain their lifestyle if you died tomorrow?

  1. Calculate five to 10 times your annual income or use a life insurance calculator to estimate how much coverage you'll need to replace your income.
  2. Add to this figure final expenses such as funeral, burial, and outstanding medical bills.
  3. Add up your total debt such as mortgage, car loans, credit card, and student loans.
  4. Factor in ongoing living expenses such as:

    • Mortgage/rent payment
    • Food
    • Clothing
    • Utilities
    • Transportation
    • Child care
    • Health care
    • Insurance
  5. Add in long-term financial needs such as college tuition and room and board.
  6. As a final step, subtract your needs from your current savings such as your 401(k) and investments to estimate how much life insurance coverage you may need.

1. https://www.lifehappens.org/blog/do-you-really-need-10x-your-salary-in-life-insurance/

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All Learning Center articles are general summaries that can be used when considering your financial future at various life stages. The information presented is for 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 Life 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.

Income Replacement

When assessing how much life insurance you need, your income is often one of your biggest assets. Income replacement for your family can be provided by life insurance coverage that could help ensure your family and loved ones have enough financial security to carry on in your absence. Do you have enough insurance to maintain a comfortable living for your family? For more information, visit the Protective Life Learning Center.