How much life insurance do I need?

Life Insurance

Clients are always curious about how much life insurance they should have. Oftentimes, random numbers get thrown around as a “best practice”, but as we move through the financial planning process, there are more specific ways to calculate the right number for each family. There are many important factors that should be taken into consideration when assessing your family’s life insurance needs and talking some of those things through with your advisor is a great place to start.

Final Expenses:

It is not uncommon to find that loved ones have unexpected expenses that need to be paid upon their death. This can include things like outstanding income taxes, unpaid debts, probate costs and mortgages that need to be paid off. Making sure these funds are available to your loved ones so they are not met with additional financial burden in an already stressful time is key.

Unmet Financial Goals:

When there is a premature death in the family, it is important to analyze if the family would still want to achieve certain financial goals. This could include things like paying for college educations or purchasing a first or second home.The surviving spouse will typically have specific retirement goals that would also need to be funded in the absence of a primary or secondary income. Making sure there are funds available to achieve these goals should be taken into account when determining the total dollar amount needed.

Survivor Income Needs:

In the same vein, analyzing survivor income needs should be considered. This would apply to the amount of money the survivor or survivors who relied on the incomeof the deceased for their basic living needs would require to maintain their current lifestyle. This requires us to calculate the difference between whatthe survivors need for living expenses are against what income (if any) is still remaining.

Human Life Value:

If you look at survivor needs, unmet goals, and final expenses, you will coverwhat the family NEEDS, but you will not be replacing the economic value thatthe deceased person brought to the family.

The“Human Life Value” concept deals with human capital and a person’s futureearnings potential. It goes beyond the needs and considers the overallfinancial impact of losing someone over time, especially if they were theprimary source of income.

Calculating the proper amount of life insurance can be a confusing and uncomfortable process but is so important when planning for the future of your family. There are many different approaches and factors to take into consideration when purchasing life insurance and each requires careful thought and planning. There is no “one size fits all” approach and we would be happy to answer any questions you may have about your life insurance options so you can make sure your family is taken care of exactly the way you would want.

Talk to us one-on-one to learn more about how we help our clients work towards their financial goals.