How Much Life Insurance Do I Need?

When you’re buying life insurance, it’s important to choose the right amount. You don’t want to have too much − and pay for protection you don’t need − but you also don’t want to have too little, and leave your loved ones at risk. 

Determining your life insurance needs

There are two common methods to calculate the amount of life insurance you need.

The lump sum need method calculates the amount needed to pay for:

• Outstanding debts
• Funeral expenses
• Taxes
• Household expenses
• Emergency needs
• Educational costs

The income replacement method calculates the amount needed to replace a percentage of your income for a specific number of years, usually until your youngest child is out of college.

Calculating future economic needs

When you are determining your family's future financial needs, you don’t have to provide 100 percent of the income that will be needed. For instance, if you are planning to provide $100,000 for your child's college tuition in 15 years, you don’t need $100,000 now − you need an amount that will grow to $100,000 by the time college starts.

Your investment professional can help you determine the right amount to buy to account for the time value of money.