How much Life Insurance does someone need?

Once someone starts to think about purchasing life insurance, one of the
next questions is “How much do I need?” Unfortunately there is no
blanket answer or one amount fits all. Every individual, family, and situation
is different. As I mentioned in my previous blog post, the amount of life
insurance you purchase may vary depending on your current and future income,
your time and responsibility role in the family (such as a stay at home
parent or primary earner), your debt, how many children you have, and if there are any special circumstances to consider such as a special needs child or disabled loved one.
Taking all of this into consideration, what you will read next are
generalizations and basic recommendations. It is always advised that you sit
down with a life insurance specialist to determine exactly what is right for
you and your family.

One of the basic recommendations is 10-20 times your annual salary. As an
example, if you make 100K annually, you might consider a policy worth 1-2
million dollars. Again, this may vary depending on your partner’s income,
number of dependents, debt, and net worth to name a few variables.

I’ve heard some clients say, well my spouse doesn’t need life insurance
because he/she doesn’t have any income, they stay home with our young children.
Who will care for these children if some tragedy happens to your spouse? The
cost of day care, full time caretaker, transportation, tutors, etc. can add up
quickly.  Even if you have close family to depend on, paid help will likely be needed.
The amount of life insurance this individual may need will vary depending on your
life style, and likely the age of your children and future earning ability of
your spouse.

Do you have a special needs child or disabled adult dependent? This will
change the amount of life insurance you need. If you are in this situation, you
are well aware of the added costs these loved ones add. When you are planning
your life insurance policy, you will have to add the amount it may cost to
have a full time care giver when you are no longer around. I know this may be a
scary thing to think about, but something that must be planned for.

Are you a small business owner?  There have been a few small business owners
I’ve spoken to about life insurance who did not plan on having life insurance
because “my spouse can just sell my business.” This process may take
a very long time to find the right buyer, especially if your spouse wants to
try to sell it for its proper value and not sell it at a devalued price in
times of distress.  Your business may be valuable, or, it might not be nearly as valuable as you think it is. Many small business owners use tax loopholes to reduce their
taxable income, unknowingly reducing the value of their business on paper, if they ever
decided to sell. Tangible assets may have a high value; such as real estate,
they may also take time to sell. This is time and money that those who depend
on your income may not be able to wait for and will not provide the tax benefits of Life Insurance.

Inevitably, no matter what your situation, if you are considering a new life
insurance policy, or your life situation has changed and you need to amend your current policy, the amount of life insurance you need will depend greatly on your specific circumstances. It is always best to sit with a life insurance specialist that
you trust to help you get exactly what is right for you.

If I can help you make sure your family is protected, please contact me.