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Life insurance is not one-size-fits-all. It's essential to consider your unique financial and personal situation (such as assets, debts, and future plans) when deciding how much life insurance you should have. Want to know how to calculate insurance needs? To make it easier, we created an online life insurance calculator you can use to help assess your individual needs.
Rules of thumb
There also are several guidelines you can follow to help you quickly come up with a number.
Calculating your coverage amount
Your life insurance needs are dependent on your personal and financial circumstances. You can either get a rough estimate or a more in-depth breakdown of the coverage you'll need.
To get a rough estimate, multiply your current annual income by ten. That figure represents a starting point for your total coverage.
Looking for a more detailed breakdown? Use the DIME formula, adding the four areas below to determine your coverage amount.
Choosing your coverage length
Evaluate how long you need coverage. If you're looking for coverage that doesn't expire for the duration of your life, whole life insurance is worth looking into. Term life insurance is an excellent option if you want coverage over a specific period, especially during a financially demanding time. To determine the correct term length for you, consider coverage that lasts until:
Selecting the right amount of coverage is important
If you were to pass away unexpectedly, ensuring you have adequate life insurance will ease your family's burden during an already difficult time. Help your family cover major expenses such as a home mortgage, debt, lost wages, and college tuition. It's important to carefully select the right coverage amount for your family's future protection.
Reevaluate your coverage annually
As your family's life and financial goals evolve, reevaluate your life insurance coverage annually to decide whether you have enough or should apply for additional coverage.
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