Insurance Advice: How Much Life Insurance Do I Need?
Recently I talked about who needs life insurance. The followup to that question is always, “How much do I need?”
Since the purpose of life insurance is to give your family enough money to invest so that they can use the income generated to maintain their standard of living, the general rule of thumb calls for 5 to 10 times your annual income.
So if you earn $50,000 a year, your goal should be $350,000, using your net after taxes. You can find that net amount by looking at your last pay stub of the year.
But this simple formula really only takes into account basic living costs. If you have a desire to send your child to Harvard or care for the special needs of a loved one, you could require more.
This simple formula does not take into account how many years your family might need to replace your income.
For a more comprehensive picture of your true needs, sit down with an insurance professional to get the full story.
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