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... these everyday expenses seem to cost us more every year. 

Nowadays many households need two incomes to cover their main expenses. Ideally, you also have some left over to tuck away in an emergency fund and to save for things such as retirement and college. 

But what if tomorrow your family lost your paycheck? Would your family be able to make ends meet if you that income stream was no longer part of your budget?

The importance of income replacement

Some people may not realize 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. 

Income replacement can make up the largest portion of your life insurance policy. As a starting point for estimating income replacement, some financial professionals suggest a range of five to 10 times your annual salary.1   So 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. 

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 including mortgage, car loans, credit card, and student loans.

4: Factor in ongoing living expenses such as:

    • Rent 
    • Food 
    • Clothing
    • Utilities
    • Transportation
    • Child care
    • Health care and insurance

5: Add in long-term financial needs such as college tuition and room and board.

6: As a final step, subtract your debt and estimated living expenses from your current savings such as your 401(k) and investments to estimate how much life insurance coverage you may need.

Keep in mind there isn't a standard formula: What works for one may not work for another. For instance, someone with older dependents may not need to calculate as many years of income replacement as someone with young dependents. 

However, it could be a starting point to help you determine how much life insurance coverage you would need to replace your income and pay off your debts and final expenses. 

The important thing to remember: Consider both your immediate and future needs. You can pencil these figures out yourself, or try using the Protective Life Insurance Calculator


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 is 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.

Learning Center articles may describe services and financial products not offered by Protective Life or its subsidiaries. Descriptions of financial products contained in Learning Center articles are not intended to represent those offered by 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.

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