How Much Life Insurance Do I Need?

This is different for every person, and is a highly personal decision. What do you want the life insurance policy to do for you? Once you answer that question, you will be in a better position to determine the amount you need. Perhaps you want it to provide for your family if you die. Perhaps you want it to pay for your funeral only. Perhaps you want it to protect your business partner. How much money will fulfill your goal, and how long will this need last?

The people with the greatest need for life insurance are the sole breadwinners of young families. Let’s say you are married and have two children and your spouse doesn’t work. What if you die? How much will be enough for your surviving family to live happily without your income? A general rule of thumb might be 10 times your annual salary. This big lump sum might be enough to provide food, clothing and shelter for your survivors and possibly more. Do you feel that this amount would provide for your family until the children are grown and your spouse could get a job?

Another person without children might only need to protect his or her spouse. The need is less, particularly if the spouse is working. How much is enough? That is a question to discuss with your spouse.

Perhaps you have a disabled child, and you need insurance to provide for this child for the rest of his life after you die. It might be a considerable sum.

Perhaps you just want an insurance policy to pay for your funeral so your family won’t have to think about that when you die. In that case, a $5,000 to $10,000 policy is probably enough.

Perhaps you have no family responsibilities and you never will. You probably don’t need life insurance, particularly if you are elderly.

For most people, a prudent plan would be to carry a large amount of life insurance (maybe 10 times your salary or more) during that period of you life when you have heavy responsibilities such as children and mortgage. Then reduce the amount of insurance when the children are grown. Finally, when you are elderly, life insurance is just too expensive and is dropped altogether. Of course, it is different for every person.