How Much Life Insurance Do I Need?

The question of how much insurance to carry is a daunting one. The bottom line is that you need coverage if you have a family or others who depend on you. Ably tackling the how-much issue is AdviceIQ contributor Neal Frankle, CFP, the founder of Wealth Resources Group in Agoura Hill, Calif. His blog is at Wealth Pilgrim. Neal’s take:

Figuring out your life insurance needs sounds trickier than it actually is. The important thing is first determine whether you need life insurance, which kind is best for you and carefully calculate how much you need. All we have to do is be clear about what your situation is, what risk to mitigate and voila, you have your answer. First question: Do you need life insurance at all? If you have dependents to protect and don’t have enough savings, you definitely need insurance. Second question: Which kind of insurance should you get? If you want to protect your family against the destruction of your business or estate taxes after your death, whole life or universal life insurance has to be considered. But if your main concern is to protect your family against a loss of your income, term insurance is the way to go. Finally, how much insurance do you need? This question is also pretty straightforward. It takes a few steps, but it’s not rocket science. Let’s go through it: 1. How much debt do you have other than your mortgage? If you have any other debt, you are spending more than you earn. Do you add to your debt each month? Do you pay it down each month? If you have debt, you have to buy more life insurance to pay it off. 2. How much do you spend each month? The most accurate way to determine your monthly needs is to use a personal budget software package like YNAB, but you can also use your bank statements to estimate your spending.