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How Much Life Insurance Is Enough?

One of the questions we hear most often is:

“How much life insurance do I need?”

You’ve probably known someone who passed away with no coverage or, perhaps, a policy that barely covered the cost of the funeral. Maybe $10,000 or $20,000. That’s okay, assuming that’s all she wanted to cover. But for most people, the loss of a loved one leaves behind financial obligations far beyond just funeral expenses.

No amount of money can replace a human life. But what life insurance CAN do is replace the economic value of that life.

The video below will help you figure out how much life insurance you should buy.

How Much Insurance do I need

“How Can I Be Sure I Have Enough
Life Insurance to Protect My Family?”

This is THE question when it comes to life insurance.

Of course, if policies were free, we’d all have millions of dollars of coverage, right?

By the way, after nearly 30 years in business, and having the opportunity to work with hundreds of thousands of clients, we have personally witnessed hundreds of real death claims.  So far, we haven’t heard any Widows complain about their husbands having too much life insurance…

Unfortunately, finding the right amount forces us to think about the costs as well.

Many financial experts recommend having coverage worth 5 to 10 times your annual salary, but we’ve never been fond of “rules of thumb.”  Why?  Because they don’t work very well.  And you can’t afford to make a mistake here.

Bottom line: how much money will your family need to replace the economic value of your life? Here are some things to think about:

  1. How much money will they need to meet immediate financial obligations? This includes all your final expenses and other lump-sum obligations. For example, uncovered medical costs, funeral expenses, estate-settlements costs, outstanding debts, mortgage payments and college tuition.
  2. How much income will they need to continue living a comfortable lifestyle? This category requires calculating your current day-to-day living expenses and future needs. For example, groceries, utility bills, childcare, etc.

In theory, if you can replace your income, your family will be okay financially, even though you’re gone.

Our life insurance needs calculator below will help you estimate how much life insurance you need to make that happen.  It will ask you to answer a few quick questions about:

  • Your annual income before tax
  • What percentage of that income does your family need to live comfortably (this generally falls into the 70-80% range)
  • Your age
  • How long your family will need the income to last – 20 years? 50 years? Forever?
  • Annual estimated inflation rate (recent averages have been between 1 and 5%. Pick a number you’re comfortable with)
  • Annual estimated interest rate (this is the amount of interest your survivors will earn on the benefit each year. Current safe money rates are close to zero. Historically, passbook savings account and CD rates are in the low single digits)

Questions? Call 800-442-9899 to speak live with one of our experience life insurance professionals.

If you’d like to see how inexpensive it may be to get the coverage you need, click the Get Started button below to get your free quote.

life insurance quote

Tools for a productive future

  • LIFE INSURANCE CALCULATOR

    Many insurance experts will advise you to get coverage worth 5 to 10 times your annual salary. But everything depends on what you want your money to accomplish for your family when you’re gone. Are you paying estate taxes, giving your daughter her dream wedding or just taking care of final expenses? Fill in your info and get an idea of how much life insurance should buy.

    • Annual income before tax: $

      Annual income is an important factor in determining your needs, but it’s not the only one. When you die, your life insurance is like your final paycheck.

    • % of income needed by dependents:  %

      Because you’ll be gone, presumably they won’t need as much as you’re currently earning.  Typically, 80% of your current income is a good place to start.

    • Your Age: years

      Annual income is an important factor in determining your needs, but it’s not the only one. When you die, your life insurance is like your final paycheck.

    • Number of years benefits are needed:  

      If you died tomorrow, how many years of income do you want to provide for your family?

    • Annual inflation rate (estimate):  %

      Because of inflation, in order to maintain your family’s current standard of living, you’ll need to plan for increases in their annual income to keep pace.  Historically, inflation has averaged between 2% and 4%.

    • Annual interest rate (estimate):  %

      This is an assumption as to how much you believe your spouse will be able to earn on the death benefit proceeds. We have found that most surviving spouses are usually very conservative in how they invest the death benefit. The most common thing we see is that the money gets deposited into a bank account. You know your spouse better than anyone. Pick a number that you feel your spouse will be able to comfortably earn on the proceeds.

    • Based on the information you provided, you need about

      of life insurance to replace your income for the next years.

  • APR CALCULATOR

    Would you like to learn about a little-known way to save a lot of money on your insurance premiums?

    Most carriers let you pay annually, semiannually, quarterly or monthly. Did you know that paying once a year can save you thousands of dollars over the life of your policy?

    This calculator shows the total dollar amount you’ll pay based on the payment plan, along with the approximate Annual Percentage Rate (APR) for the additional charges. These charges can be more expensive than the interest rate on your least favorite credit card! Insurance companies make a lot of money this way…

    Plug in the numbers and find out what you’re REALLY paying.

    • Enter annual premium: $

    • Choose payment mode:

    • Enter payment amount: $

    • The cost of term life insurance payment options:

      Your APR:

      Your annual APR charge:

      If you’d like to find the APR of a different premium, payment option, or payment amount, please click the button below.

  • LIFE INSURANCE GLOSSARY

    Accelerated Death Benefit Rider

    An optional add-on life insurance benefit that allows the insured to receive partial payment of the policy’s face amount before dying in the case of terminal illness or injury. Also called a living benefit.

    Accidental Death and Dismemberment Insurance

    A type of insurance that provides payment if the insured’s death is the result of an accident, if he/she becomes paralyzed, loses limbs, or permanently loses eyesight

    Accidental Death Benefit Rider

    An optional life insurance add-on that pays extra benefits above the face amount if the cause of death is a covered accident.

    Annually Renewable Term

    A type of term insurance that provides one year of coverage and automatically renews each year. Premiums increase every year and the annual increase gets larger as the insured gets older.

    Beneficiary

    The recipient of a life insurance death benefit.

    Binding

    Temporary coverage to protect an insurance applicant during the underwriting process.

    Cash value (or cash surrender value)

    Most permanent life insurance policies have a built-in savings function. The policy owner can borrow against it or receive payment if they cancel the policy.

    Conditional Receipt

    Policy owners have the option to pay a premium when submitting an application. Doing so provides coverage during the underwriting process. If the insured dies during underwriting, the death benefit will be paid if he/she is shown to qualify for the policy applied for.

    Contingent Beneficiary

    Person(s) or organization(s) that will receive life insurance death benefits if the primary beneficiary dies before the insured. Also called a secondary or tertiary beneficiary.

    Conversion Privilege (or Right)

    The ability to convert a term life insurance policy into a permanent policy, usually without a medical exam or proof of insurability. Almost all term policies offer this privilege

    Death benefit

    The amount a policy’s beneficiaries receive when the insured dies. Also known as the face amount or proceeds.

    Decreasing Term Insurance

    A type of term life insurance in which the face value decreases over time at a predetermined rate. The premium is level throughout the life of the policy. Sometimes called “mortgage insurance” because it is designed to cover liabilities that decrease as the insured gets older.

    Disability Income Insurance

    A type of insurance benefit that provides income replacement during periods when the insured is disabled.

    Face Amount/Value

    The amount a policy’s beneficiaries receive when the insured dies. Also called the death benefit.

    Final Expense Insurance

    A type of permanent life insurance designed to cover the expenses directly related to the death of the insured, such as funeral costs, medical expenses or legal fees. The face amount is generally lower than other types of insurance.

    Guaranteed Issue Life Insurance

    A type of life insurance that is offered to an individual without regard to health conditions. The applicant does not have to undergo a medical examination or answer any medical questions. Guaranteed life insurance costs considerably more than other kinds of insurance and the death benefit is limited.

    In-Force

    A term used to describe a life insurance policy that is active and in good standing.

    Increasing Term Insurance

    A type of term life insurance in which the death benefit increases at a predetermined rate.

    Insured

    The person whose life is covered by a life insurance policy. The insured and the owner are not always the same person.

    Level Term Insurance

    Term insurance with premiums that stay the same for the life of the policy. The most common term lengths are 10, 15, 20, and 30 years.

    Long-Term Care Insurance

    A type of health insurance designed to cover costs of long-term care in-home or at assisted living and nursing homes.

    Other Insured Rider

    An optional life insurance add-on that provides coverage for a person other than the insured. Also called a second insured rider.

    Permanent Life Insurance

    A life insurance policy that covers the insured until death rather than a specific number of years.

    Policy

    The contract between a life insurance policy owner and an insurance company. The company promises to pay a death benefit to a beneficiary when the insured dies as long if the insured meets the conditions of the contract (for example, dying within the term period).

    Policy Owner

    The person who owns a life insurance policy. The policy owner and the insured do not have to be the same person

    Preferred Risk

    A person who is deemed more likely to have above-average longevity (based on health, lifestyle, and other factors). Insured individuals in this rate class pay lower premiums.

    Premium

    The payment required to maintain an insurance policy. Payments can be made monthly, quarterly, semiannually or annually.

    Primary Beneficiary

    The beneficiary who will receive death benefits as long as he/she is alive when the insured dies. If the primary beneficiary dies before the insured, a contingent or secondary beneficiary will receive the proceeds.

    Proceeds

    The death benefit of a policy. Also known as the face amount.

    Return of premium (ROP)

    A type of term life insurance that pays all premiums back to the policy owner at the end of the term if the insured is still living, or percentage of the premiums if the policy is cancelled before the term ends.

    Rider

    An optional benefit added on to a life insurance policy to expand the coverage of the base policy.

    Secondary Beneficiary

    Person(s) or organization(s) that will receive life insurance death benefits if the primary beneficiary dies before the insured. Also called a contingent beneficiary.

    Simplified Issue Life Insurance

    A type of life insurance that only requires the applicant to answer medical questions. No medical examination is needed. It is more expensive than other kinds of insurance and the death benefit is limited.

    Smoker Ratings

    Insurance companies charge higher premiums to tobacco users

    Standard Risk

    A person who is deemed to have average longevity (based on health, lifestyle, and other factors).

    Sub-Standard Risk

    A person who is deemed to have below- average longevity (based on health, occupation, risky behavior, and other factors). Insured individuals in this rate class pay higher premiums.

    Suicide Clause

    Life insurance companies usually state that if the insured commits suicide within a specified period, usually two years, after beginning the policy, the company is not required to pay the death benefit. The company may return any premiums paid.

    Term Life Insurance

    A type of life insurance that proves coverage for a specific number of years, usually 10, 15, 20 or 30 years. If the insured lives beyond the term, no death benefit is paid. Term insurance is less expensive than permanent insurance.

    Term of Policy

    Length of time a term life insurance policy provides coverage.

    Underwriting

    The process of determining whether a life insurance company will insure an applicant. The company reviews the application, the results of the medical exam, and other relevant information in public records to make its decision. This is also when premiums costs are set.

    Uninsurable Risk

    A person who is deemed too risky to provide insurance coverage.

    Universal Life Insurance

    A type of permanent life insurance that gives the policy owner flexibility with regard to the face amount and premium amounts. These can be modified to respond to changing needs and circumstances. Universal life policies accumulate cash value.

    Variable Life Insurance

    A type of permanent life Insurance that allows some or all of the premium payments to be held in a separate account for investment purposes. The performance of the investments varies, but a minimum benefit payment is guaranteed.

    Waiver of Premium Rider

    An optional add-on benefit that waives policy premiums after the insured has been disabled for a predetermined length of time, usually six months.

    Whole Life Insurance

    A type of permanent life insurance. Whole life offers level premiums for the life of the policy and may accumulate cash value.

We only work with highly rated insurance companies – brand names you trust. You may be able to save money without sacrificing quality and strength.