Making the decision to purchase life insurance is an important step in protecting your family’s future and ensuring they have the financial support they need if something happens to you. So, how do you know how much coverage to buy? Everyone’s needs and budget are different, but here are some general guidelines to help estimate the amount of coverage that makes sense for your family.
Think about your family’s needs and how coverage may be used. Then estimate an amount for each category.
Income replacement: A general goal is to choose coverage that equals 5 times your annual income,
but 2 times your salary is a good start!
Final expenses: With the average funeral costing over $8,0001, you may want your loved ones to have the financial support to cover final expenses.
Daily expenses: You can replace lost income and help your family maintain their standard of living by assisting with day-to-day expenses.
Paying off debt: Your loved ones could use proceeds to pay the mortgage, outstanding medical bills, credit cards or other remaining debt.
Fund education: If you have children in college or plan to attend in the future, life insurance can help with tuition and other related costs.
Create an emergency fund: If your family does not need help with immediate expenses, they can create a reserve for down the road.
Estimate your coverage needs by adding up all the categories. Remember, this gives you an ideal amount of life insurance coverage based on your current financial situation.
As life changes, like getting married, having a child, or buying a home, your coverage needs may change too. It’s a good idea to review your life insurance regularly and ensure your family has the protection they need.
1 National Funeral Directors Association. December 2023.
