Tips for Determining How Much Life Insurance You Will Need

How much life insurance do you need? There are no hard and fast rules or answers. The number depends on your individual circumstances, life stage and goals in obtaining insurance. The following tips can help you arrive at a ballpark figure.

Tip 1. Use a Life Insurance Calculator

• A life insurance calculator is a fairly accurate way of conducting a capital needs analysis (in other words, determining how much money or capital you will need).
• To determine your amount, plug in estimated figures for funeral costs, estate taxes, mortgage and other debts. You will also plug in anticipated income from social security or other sources, assets and the number of years the income from the policy will need to last. These numbers taken together should give you an idea of how much life insurance you will need.

Tip 2. Use a Formula

• The simplest formula multiplies the annual income of the policy holder by the number of years the income from the policy will need to last. For example, if the policy holder earns $30,000 annually and wants to provide 20 years of income for beneficiaries the face value of the policy should equal $600,000 (or twenty times the policy holders salary)
• More complex formulas consider a variety of factors to arrive at more accurate figures.