How Much Life Insurance Do I Need?

Posted in Life insurance

So you’ve decided to look into your options with Colorado life insurance. Smart. But how do you know how much coverage to buy? Choosing between permanent or term life insurance is only the first step—now you need to decide how much coverage you actually need to get peace of mind. Luckily, there is an easy way to calculate life insurance needs, and it’s something you can do yourself. Here’s a quick way to estimate life insurance requirements. 

Carrying at Least 10x Your Annual Income

The most well-known way to make a quick estimate of life insurance needs is to look at your current income. Financial planners suggest securing enough coverage to support ten times what you take home annually. For example, if your annual income is $70,000, then you should consider no less than $700,000 worth of coverage.

Calculating Your Full Estimated Financial Contribution 

Estimating your full financial contribution can give you a more detailed—and maybe more accurate—snapshot of life insurance needs. Calculating this number isn’t complicated, but you will need access to some information.

First, identify your complete annual contribution. That means, if you work part-time, or have additional income above and beyond a regular paycheck, add it all together to get one total sum. This number is your complete annual contribution.

Next, estimate how many years your family will need to replace your income. If you have a spouse or children, think about how long your contribution will be needed. For example, do you have 15 years remaining on a home mortgage? Maybe you have two children who are likely to want to go to college in less than 5 years.

Multiply your complete annual contribution by the number of years your family will need to replace your income. The sum is your full estimated contribution. Now add up your total assets and your total debts. Anything that can be liquidated for cash is an asset, such as a boat, or expensive artwork.

For debts, be sure to include both future debts, as in a mortgage and outstanding debt, but also, money that will be needed at death to meet immediate obligations. This includes final expenses, like unpaid medical bills and funeral costs. Subtract your debt total from your asset total to create your net worth.

Finally, add your net worth to your full estimated contribution. The sum of these two numbers is an estimate of the amount of coverage your family will need to sustain the household and meet future financial obligations.

Learn About Your Options

Once you have a realistic estimate, it’s simple to find an option that suits your budget. Ready to see what’s available to you? Give us a call. Or, start learning right away by entering in a few quick details for a free online life insurance quote.



Get Your Quote Today