This is one of the most frequently asked questions folks have when obtaining life insurance quotes. And as much as we'd like to give one number as an answer, in truth the number will be different for every person and their particular situation. For example, the head of a family will naturally need more while a single individual can get by with less. Of course, it's important to do your homework when making this calculation, otherwise you could put your loved ones in financial distress if a claim needs to be filed. Things to consider when calculating life insurance coverage include: Number of dependents, your marital status, spousal earnings, and how many years until retirement for each spouse. Unforunately, the vast majority do not have adequate coverage.
It's crucial to perform a needs analysis. There are numerous ways this can be approached. One method is to multiply your income times a fixed number of years, say 20. Next, figure in outstanding debts including home mortgage, etc. Finally, other assets and savings are considered as well. An example of this would be a 35 yr old male currently making $30k annually with $70k in debts and $20k in assets and savings.:
15 x $30k = $450k + $70k - $20k = $500k
A different method is to multiply your annual salary by how many years you have until retirement. Thus, in our example, the 35 yr old currently making $30k per year would probably want to have around $900k in life insurance. However, this calculation is not completely correct because it doesn't consider your loved ones receiving other funds such as Social Security, work income, retirement funds, etc.
Each situation is different. Remember, too, that this coverage is to help the family's immediate needs such as paying off final illness costs, re-adjustment expenses such as moving or job hunting, et cetera. So, now you see why there really is no blanket figure we can name which would accurately predict the coverage needs of ever situation. It's always up to each person to determine how much coverage they need. And once that is determined, they must pick either an affordable term life insurance policy or a whole life plan. But that is a subject for another day.
