How Much Life Insurance Do You Need?
We teach you what to consider before you buy life insurance.
Life Insurance Needs Overview
Most people underestimate their beneficiary life insurance needs, as they don’t consider all factors, such as:
Chances are, you need more life insurance than you think.
- Income Replacement
- Mortgages and Other Debts
- Education Funding
- Final Expenses and Immediate Needs
- Retirement Planning
- Surviving Partner’s Work Situation
While general guidelines give you a starting point, don’t accept a blanket recommendation for coverage amounts.
As you consider the amount of death benefit you need,
You also want to consider what type of life insurance to buy, whether you need accidental death, term life, universal, or whole life insurance.
Review the riders available and conversion privilege before buying term life.
Use these planning tools to help you accurately determine your needs.
You can also start from the beginning with our Life Insurance for Dummies guide.
What percentage of your income needs to be replaced if you die?
The amount of coverage you seek has to make sense to the insurance company.
If you need more insurance than the guidelines indicate,
Life insurance underwriting will be receptive to it if your reason makes sense to the insurer.
In some situations, obtaining life policies from multiple companies may be necessary to cover higher needs requirements.
You may also want to look at social security survivor benefits to see how much your spouse would receive if you die.
As part of your planning, it’s essential to consider any debts you have as part of planning.
Mortgage balances, car loans, student loans, weddings, and other debts should be considered.
If you have a 30-year mortgage, a 30-year term life insurance policy may be perfect to meet your needs.
You may want to consider a 20-year term policy if the 30-year pricing is too expensive.
You may think that replacing your income would take care of these mortgages and other debts,
But that’s not necessarily the case.
If you’re dead, your family is now working with a lump sum of money that has to be managed.
If that is helpful, you can also set the death benefit payout to be a lump sum or paid out over time.
Some people want to leave their family with a lump sum of money and clear their debts when they die.
Other people just want their insurance to cover the loss of their income.
There’s no wrong answer.
I would just say that unexpected things happen in life, as we all know, and life insurance planning is not an exact science.
And you can quickly get 500k life insurance with no medical exam required from many life insurers.
It’s a simple process where we submit basic info to the insurance company.
The insurer will check the MIB and maybe obtain your medical records to review your height, weight, and overall health, including your family history of medical conditions.
The company will then make an underwriting offer or notify you that a paramed exam is needed.
If you are a tobacco user, a paramed may be required if you smoke cigarettes, but not cigars, chewing tobacco or pipe tobacco.
If you’re a business owner and need life insurance for an SBA loan, we can help you set that up along with the required collateral assignment.
If you have kids, you’re already considering those future education bills.
Educational expenses are astronomical, and there’s no end in sight.
Future educational plans for your children may include college, technical schools, grad school, etc.
How much will a college education cost in 2028?
Check out this college cost calculator from CollegeBoard.
Final Expenses and Immediate Needs
When you die, a lot of unexpected expenses arise.
Unexpected costs may come from having to fly kids or family members home,
Hosting people for days and paying for a funeral.
This guide from the National Funeral Directors Association gives you a better estimate of funeral costs.
Sometimes, it may be necessary to consider potential estate taxes as part of your life insurance planning.
As a senior, you can get a guaranteed issue policy with no exam required.
As part of retirement planning, don’t overlook your surviving partner’s retirement.
You’re probably contributing to a 401k or other retirement plans through work, right?
What happens when you die?
If the surviving partner would be dependent on your retirement plan contributions,
You need to consider that as part of your plan.
Surviving Partner’s Work Situation
Things change when your partner dies.
You may want to take some extended time off from work.
If one of you is a stay-at-home partner,
The survivor needs to consider how their work situation may change due to the stay-at-home partner’s death.
Will you stop working and stay home to raise the kids?
Maybe you’ll reduce your hours at work.
It also raises another point to consider regarding stay-at-home partners.
Life insurers recognize the value that a stay-at-home partner brings to a family,
Even if that partner doesn’t have an income.
Most insurers allow stay-at-home partners to obtain 50-100% of the amount of life insurance that their partner has.
Life Insurance Needs Calculator
Now that you have greater insight into the factors to consider, how do you determine how much life insurance you need?
That’s where these great life calculators will help you.
One of the best needs calculators we found came from the nonprofit organization LIFE Happens
We like this calculator the best because it factors in all of the above.
If one of the factors doesn’t apply to your situation, you can skip it.
After we discovered this calculator, we started looking for others that may provide you with a comparison.
Surprisingly, not every life insurance company provides life insurance calculators.
American General’s Life Insurance Calculations worksheet allows you to input values and calculates life insurance needs on its worksheet.
Banner Life offers easy-to-follow life insurance needs worksheet for you to use.
Keep in mind that these calculators give estimates only.
Something else to keep in mind is if you have health issues.
Specific health issues may add substantially to your cost.
Health conditions such as angina, bipolar, thyroid diseases, etc., may increase your rates.
We’ll help you balance your life insurance needs with your budget to ensure that you have the best coverage possible for your situation.
Now that you know your coverage needs, please submit your quote request.
Let us help you get the right coverage at the most competitive rates.
We’ll help you put a plan together that protects your family.
Request a free, no-pressure, no-obligation quote today.
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Michael J. Horbal
Owner of RiskQuoter
Too many people overpay for life insurance because they have the wrong life insurance company, agent, or both. That’s why I started RiskQuoter – To help you get the best life insurance rates available.
As an independent insurance agent, I’m licensed in all 50 states and the District of Columbia and offer 40+ life insurance companies to ensure you get your best rate!
By Michael Horbal – Updated on 01/28/2023