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The Total Coverage Blog

How Much Life Insurance Do I Need?

When deciding how much life insurance you’ll need, you can use the basic rule of thumb that says you should have 5 to 8 times your yearly salary in coverage. Like most things insurance related, there are more factors involved in answering this question — such as your lifestyle and your financial situation.

Read our blog to calculate your life insurance needs — and to see some sample life insurance premiums.

Calculate Your Life Insurance Needs

Generally, almost all life insurance agents and experts agree that most people just don’t have sufficient life insurance to meet all of their needs. Either they have too small of a policy or they have no personal life insurance at all.

When looking at a very basic — but safe — rule of thumb to decide, “How much life insurance do I need?”, establishing 5 to 8 times your yearly salary is a good place to start. Essentially, you want to calculate life insurance needs that would pay off debt, cover final expenses (funeral costs, for example), create an emergency fund, and replace your income for 5 to 10 years.

newlyweds with life insurance

After receiving a life insurance payment and covering expenses and lost income, if there are additional funds, your strategy should be to cover expenses, pay off debts, and finally use it as an investment that can earn you a reliable return.

People in the 21st century have far greater needs and requirements from their life insurance. The basic cost of living and the cost of healthcare has increased significantly — your life insurance needs to keep up. Even if you have life insurance through your employer, you should strongly consider getting personal coverage. If the insurance premiums are maintained by your employer, losing your job means losing your coverage.

Reasons You Need More Life Insurance

While the 5 to 8 times your salary rule of thumb makes a safe projection for most Americans, there are some extenuating factors that mean you need more life insurance.

Here are the major reasons you NEED more than a standard amount of life insurance:

  • Large Amount of Shared Debt — If you and your spouse are in a lot of debt, having a larger insurance payout can keep the surviving partner from being overwhelmed.
  • Loan Applications — As a condition to apply for certain private loans, lenders can require that you have an additional life insurance policy.
  • You’re the Partner in a Business — If you’re an owner or partner in a small business, you may want to — or be required to — secure additional life insurance coverage to protect your business in the event of your unexpected passing.
  • Inflation — Interest rates have been at historically low levels for over a decade and when interest rates go up, inflation increases. The cost of everything will be growing each year.

Cost of Life Insurance

The safety net and the peace-of-mind conferred by life insurance is a factor that makes it an attractive idea for many Americans. However, one of the most important factors people consider when deciding how much life insurance they need is the cost.

The cost of life insurance is determined by several factors:

  • Your Health Status — Obesity and pre-existing medical conditions are some of the primary factors that can cause your insurance premiums to increase. There are numerous other health-related risk factors used to calculate your life insurance cost.
  • Your Age — Your age correlates directly to how much you’ll pay for life insurance. The older you are, the more expensive your premiums become.
  • The Amount Your Life Insurance Pays Out — The higher payout you want to receive from life insurance, the higher your premiums.
  • The Type of Life Insurance You’re Selecting — The most popular type of life insurance is term life insurance which covers a set period of time, for a lower monthly premium. The most common term length is 20 years. On the other hand, a permanent life insurance policy requires a 4 to 5 times more expensive monthly premium, but the coverage doesn’t expire.

See Some Example Life Insurance Quotes for Lancaster PA:

  • If you’re around 30 years old, you can get term life insurance with a $500,000 payout for less than $30 per month.
  • If you’re around 40 years old, you can get term life insurance with a $500,000 payout for around $45 per month.
  • If you’re around 50 years old, you can get term life insurance with a $250,000 payout for around $70 per month.

How Much Life Insurance Do I Need? Ask an Agent

Do you find yourself wondering, “How much life insurance do I need?” Working with a trusted local insurance agent is the best way to get that answer.

An experienced life insurance agent can help you determine what your family’s needs would be in a catastrophe and can plan a policy to match it. In addition, a skilled agent can tailor a solid plan to what you can afford to pay every month.

life insurance for newborn baby

Finally, in the event that you need to collect on your policy, your insurance agent can assist your family to ensure all paperwork is filed correctly and as quickly as possible.

Unruh Insurance is an experienced local insurance agent with dedicated life insurance specialists. Contact us today to learn about your life insurance needs — and to get a free quote.

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