How to Determine the Amount of Life Insurance You Need

Purchasing life insurance can be one of the most important gifts you give to your family. Strike a balance between what you think your family will need and what you can afford to buy.

Instructions

Difficulty: Moderate

Things You’ll Need:

• Term Life Insurance
• Whole Life Insurance
• Life Insurance
• Accounting Services

1. Calculate your after-tax income and then count the number of years of life expectancy remaining.
2. Consult a reputable agent and use an insurance company's computer program to plug in numbers and generate a figure.
3. Add outstanding debts, such as your mortgage, car loan and credit card debt.
4. Remember to allow for any medical costs and funeral expenses.
5. Remember that your family may also benefit from pension and Social Security benefits.
6. Consider your spouse's ability or desire to earn income and consider extra child care costs.
7. Remember the special needs of a disabled child or a parent whom you support.

Tips & Warnings

• No survivor ever complains about receiving too much in life insurance benefits, but strike a balance between what your family might need and what you can afford.
• Remember that if your estate amounts to more than $650,000, your survivors will be obligated to pay federal estate taxes.
• Determining the amount of coverage is your obligation. Don't be oversold.