Things You'll Need:
- A calculator
- A complete list of all of your assets and liabilities
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Step 1
The first step in determining how much life insurance coverage you need is to calculate your total debt. All debts should be included here, such as mortgages, student loans, personal debts that may not be on your credit report and consumer debt. The aggregate total of these numbers is the absolute minimum that you should ideally be covered for.
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Step 2
The next factor to consider when buying life insurance is your family, if you have one. Do you have other loved ones to provide for? If so, what will their needs be? How much financial provision will they need? And for how long?
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Step 3
After your and your family's needs have been determined, look at your budget. Are there any long-term cash outflows that must be paid for? If so, how much will be required to fulfill these obligations?
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Step 4
As an example, suppose that Bob has a wife and two kids and makes $65,000 a year. He has total debt of $220,000, counting school loans and his mortgage. This is the minimum amount that he should have life insurance coverage for.
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Step 5
But Bob's family budget also has $2000 per month of living expenses, and his kids want to go to private colleges, so his composite education expenses are probably going to be about $250,000 altogether. This means that he should probably add these amounts to his debt when computing necessary coverage.
