How Much Life Insurance Do You Need?

Most people have no idea how much life insurance they really need. Since each person's financial and family situation is different, there are many variables involved. Some of the things that you will consider when determining the amount of life insurance to buy are:

• Your dependents (spouse, children, parents, etc.)
• Debts such as a mortgage, auto loans, student loans, business loans, etc.
• Assets- how much do you currently have in savings and investments?
• Future financial obligations and goals such as a child's college education

The General Method

A quick and easy way to come up with an amount of life insurance you need is to multiply your annual income by 5 or 10. Five times your annual income is on the lower end, and 10 times your annual income is on the higher end and will last your family longer.

The Expense Calculation Method

Add up all of the expected expenses that your family would incur if you were to die. Some examples are funeral expenses, money to pay current debts, mortgage payment, tuition, and replacement income needed for your family. 

The Income Replacement Method

Determine how much of your current annual income your family would need in order to maintain their current lifestyle. Then determine how many years your income is needed until your spouse retires or until your children have finished college. For example, if you make $60,000 and your estimate that your family would need 75% of your income for 10 years, then you need to get about $450,000 worth of life insurance coverage.

These methods should be used as a tool to help you come up with an amount. It's also important to work with an experienced agent to help you determine what type of insurance is best for you, and which company has the lowest rates for your particular situation.

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