If you’ve read about how life insurance works and what types are available, you may be wondering just exactly how much life insurance coverage makes sense for your unique situation.

If you're doing research online, you’ll probably find a wide range of answers. If you have coverage at work, you most likely have somewhere between 1-2 times your annual income. Most companies recommend between 5-10 times your annual income. 

How do you know what's right for you? 

There are a few things to think through for yourself in order to determine the right coverage amount. 

1. The more coverage you purchase, the more expensive your premiums (payments) will be.
   
   
2. Life insurance is a financial tool that can be used in many ways, such as:
   
   
   • Covering your final expenses. Things like funeral costs can cost around $15,000 or 4% of your estate.¹  If you don’t have enough accessible savings to tackle that amount, you should consider a policy that covers at least those costs.
     
     
   • Giving your family the resources to adjust to the financial loss of your paycheck and the emotional loss of not having you around. Your spouse might have to get a new job, figure out childcare adjustments or change the housing situation – having money to take care of expenses while making that plan can be essential. 
     
     
   • Keeping your family living the same lifestyle that they currently enjoy (with the help of you and your paycheck). If you want to prevent a situation where your family would need to transition to a more frugal living situation without your paycheck, a larger life insurance policy can replace more of your income for a longer period of time.
     
     
   • Funding a college education for your children. If you have kids and would like to be able to send them to college in the event that you pass away, a life insurance policy can be sized to meet that goal.

Have you considered the above? Which situation resonates most with you? You can see how your goals and budget can dramatically change what amount is right for you.

Our Rule of Thumb

If we are asked how much life insurance coverage someone should own without any information about their situation, our rule-of-thumb is about five times their annual income. That should provide an amount of money that would give your family flexibility and some comfort without breaking the bank today.

If you want a more custom recommendation for your unique situation, try our life insurance calculator and play around with your options.

If you have more questions about how much life insurance coverage you should purchase, send us an email or call us toll-free at 855.348.3091.

¹http://www.lifehappens.org/insurance-overview/life-insurance/calculate-your-needs/