How Much Life Insurance is enough?

Joseph Stephens |

Before attempting to answer this question, you must have a thorough understand of exactly what you are insuring. The purpose of life insurance is usually to provide protection against the financial impact of your death, only you and your insurance specialist can determine exactly what the dollar value of that might be. Your vision of a financially “good life” for you and your family, should still be obtainable for your family if you happen to pass away. If you are the “goose that lays the golden eggs” and it takes a certain number of “eggs” each month to pay the bills and live a good life, then it is important to insure the “goose” for the value of a lifetime of “eggs”.

If it currently requires $100,000 a year right now to have a good life, how many years would your family count on for that income to continue? 20 years? 30 years? A lifetime?  We often read in a personal finance magazine, or hear a celebrity financial planning pundit recommend that people have enough life insurance to cover seven to 10 years’ worth of income; given that you could unexpectedly pass away at any age, this may not be nearly enough coverage.

Determining how much life insurance is enough is a serious matter requiring serious planning. Many people are given only one opportunity to get it right. Take for example, a young adult, who expected to buy more life insurance in the future and then develops a serious heart ailment; they may never get the chance to upgrade their policy and adequately provide for what their family needs. Young individuals who have families to protect should always be insured to the extent of their projected value, and considering their family’s projected needs, as determined by their insurance specialist. It is important to realize that what you might need in the future, in terms of a life insurance policy, may not always be available to you, if you wait.

Quantify Your Moments of Wealth

When having the conversation about how much life insurance is enough, it is important to fully grasp just what it is that you are protecting. Although assigning a dollar value to your life may seem callous and glib, it is important to keep in mind what you are really providing for your family, and how you are enabling their future. A moment of wealth has nothing to do with money; rather it is an unexpected hug from your son, your daughter winning a special award at school, your spouse telling you how proud he or she is of you – the moments that contribute to your overall well-being. People who take every opportunity to notice and record their moments of wealth have a much deeper sense of what is important to them and their families. Being aware of your true wealth as a human being makes your protection planning much more purposeful.

*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. Copyright 2014-2015 Advisor Websites.