It depends on your individual circumstances and policy must-haves.
The primary purpose of life insurance is to cover end-of-life costs and protect your beneficiaries. So the amount you’ll need largely depends on the size of a safety net you want to leave behind.
Why we like:
Why we like: LadderLife™ Life Insurance
What factors should I consider when assessing my life insurance needs?
Consider both your financial situation and the expected needs of your beneficiaries when building a life insurance plan. This includes:
- Existing debt. Unfortunately, your debt doesn’t die with you — it gets transferred to your survivors, usually your parents or partner. To ensure they can settle your debt, take any loans you have into account, like mortgages, car loans and student loans.
- Your monthly budget. Though life insurance is an important part of planning for the future, it shouldn’t break the bank. Find affordable coverage by deciding how much you can reasonably set aside each month after your critical bills are paid.
- Marriage. If you’re married or thinking about it, look at the financial obligations that come with tying the knot, such as the cost of the wedding, rent or a mortgage. Life insurance also protects your spouse and provides them with income should you die. A life insurance payout can help fund your partner’s retirement or extra care in old age, like senior living arrangements.
- Spouse’s age and lifestyle. Speaking of spouses, think about your husband or wife’s age, health and lifestyle. The younger and healthier they are, the more coverage you’ll need. On the flipside, if they work or have a source of income, you may not need to buy as much coverage.
- Children. As beautiful as they are, children are a huge financial responsibility. Whether you have them or are hoping to, a life insurance policy should give your kids the money they need to live when you’re gone.
- Your number of dependents. Beyond children, you may find yourself a caregiver of more dependents. Consider how many people depend on you and choose your benefit accordingly.
- Size of family. Add on extra coverage for each child.
- College plans. Are your kids planning to go to college? That’s amazing — but it’s also expensive. When you’re running the numbers, factor in the cost of college.
- Care. You may be covering medical expenses for a parent or paying for a nursing home. If so, consider those costs as part of your life insurance policy.
- End-of-life expenses. Funerals aren’t cheap. To ease your family’s stress during that time, you might want to set aside some money to cover your funeral and burial costs.
- Life insurance through work. Group insurance typically only offers a base level of protection, like $100,000, which can leave your family in a tight spot in the event of a tragedy. You might think about supplementing your policy.
- Financial cushion. If you want to go above and beyond protecting your family, you can opt for higher coverage to give them a financial safety net. That way, they’ll have enough money to not only pay off your debts, but maintain or enhance their lifestyle. This is linked to leaving a legacy.
- Business ownership. Do you have a business, or are you hoping to start one? A life insurance policy can give the company and its employees financial security in case something happens to you.
- Other financial plans. Life insurance is meant to protect you and your family — not stress you out and send you broke. When you’re calculating your needs, consider any other savings you have, such as a 529 plan. And try to keep any retirement planning, like a 401k, separate from life insurance.
Can I afford to pay for life insurance?
The cost of your life insurance policy is mostly determined by your age, health and overall lifestyle. In general, the younger you are, the cheaper it is. The average term insurance rate for $250,000 coverage of a healthy nonsmoker younger than 45 is less than $30 per month.
Consider the two most common types of insurance offered — term and whole. Depending on your age and health, one of these options may be more affordable than the other.
- With term insurance, if you survive the length of the policy, the insurance company doesn’t have to pay. Since there’s no inherent cash value, it’s often cheaper for people younger than 50.
- But whole — also known as guaranteed life insurance — can be helpful for people with pre-existing conditions since the lifelong coverage comes with a set premium. Compare average costs to see what your rate could be.
Estimate your life insurance needs
How much life insurance do you need?
Answer three questions to see the coverage we recommend.
1) How much debt do you owe?
Include mortgages, credit cards, car loans, student loans and other debt.
2) How much do your loved ones need each month?
Start with how much you take home monthly, adding rent, food and necessities.
3) How many months will your loved ones need the income?
Indicate how long you think your loved ones need before they can sustain themselves in your absence
Your recommended coverage:
$50,000
Typically you'll want to add another $15,000-$20,000 for final expenses such as medical costs and funeral expenses.Compare life insurance providers
Is life insurance a must-have?
While life insurance acts as a financial cushion for loved ones when you die, it’s up to you to assess the actual needs of your circumstances. Reasons why you may decide to opt out of life insurance include:
- No beneficiaries. If you’re young, single and healthy with no kids and have an extended family that’s financially stable, buying life insurance may not be essential to your loved ones’ survival. Similarly, if your kids are out of college, grown and supporting themselves, it may not be necessary to leave money behind.
- Your job covers it. Employers sometimes offer life insurance as a benefit. These policies are referred to as group life. But they typically only cover one to two times your annual salary.
- You don’t financially need it. If you and your spouse have enough assets and income accumulated to care for yourselves and your dependents independently, it may not be worth paying for the monthly premium.
- You really can’t afford it. If paying for life insurance is going to be a financial burden, you may want to forgo it altogether until you’re in a better position to pay a premium.
Bottom line
Life insurance quotes are determined by your age, gender and health, but the actual amount you need is based on your personal financial obligations. Even if you’re stressed about the implications, comparing policies can help ease your mind and determine what’s feasible for your situation and budget.
