How Much Life Insurance Do You Really Need?

Some people equate life insurance with tragedy and death. In truth, life insurance is for the living. Without it, the sudden demise of a key breadwinner could leave a family stranded without the resources to maintain their lifestyle—or even retain their home.

Not so long ago, professionals recommended that families carry a life insurance policy with a death benefit of 10 times their annual household income. Today, however, in light of rising house prices in many parts of the country, spiraling college costs and low interest rates most advisors now recommend up to 20 times your household income.

Unfortunately, most American families are underinsured. The gap between what households have and what they need is nearly $320,000, according to LIMRA’s study Closing the Life Insurance Gap, 2015.

If you’d like to get a working idea of how much life insurance you may need (or how much more you may need), you can use our quick Life Insurance Needs Calculator.

A Cornerstone of Your Financial Plan
Life insurance is a cornerstone of your financial plan, for these reasons.

1. It provides income replacement. For most people, their most valuable economic asset is their ability to earn a living. If you have dependents, then you need to consider what would happen to them if they could no longer rely on your income. A life insurance policy can also help supplement retirement income, which can be especially useful if the benefits of your surviving spouse or domestic partner will be reduced after your death.

2. It covers outstanding debts and long-term obligations. Without life insurance, your loved ones must shoulder burial costs, credit card debts, and medical expenses not covered by health insurance using out-of-pocket funds. The policy’s death benefit might also be used to pay off a mortgage, supplement retirement savings, or fund college tuition.

3. It can be used for estate planning. The proceeds of a life insurance policy can be earmarked to pay estate taxes so that your heirs will not have to liquidate other assets to do so.

4. You can use it to support a charity of your choice. If you have a favorite charity, you can designate some or all of the proceeds from your life insurance to go to this organization.

Remember an agent or advisor can help you figure out your life insurance needs and find something that works within your budget. If you don’t have one, you can check out our Agent Locator.

by Marvin H. Feldman

Marvin H. Feldman, CLU, ChFC, RFC, is president of the Feldman Financial Group in Palm Harbor, Fla., and president and CEO of Life Happens. He is a 41-year Million Dollar Round Table member and was the 2002 president. He is a 33-year member of the MDRT Top of the Table and a past Top of the Table chairman. He also is the recipient of the 2011 John Newton Russell award, the highest honor bestowed on an individual by the insurance industry.

  1. I realized the other day when I was checking my mail that I don’t have life insurance. If something were to happen to me and my husband our kids would be left with nothing. We have four kids, does that affect how much we need? I’ll have to ask that once I figure out my financial plan. I’m happy to hear that it will cover any outstanding date.

  2. Great article. Finding the right amount of coverage is essential. Don’t be afraid to reach out to professionals for help. Leverage their expertise and get your questions answered before making a decision.

  3. Very well written article. I found some important points which really convince me to think for a once that why we should need life insurance. Thank you for this,

  4. If you really want life insurance to be an investment that safe guards your family, you have to get a permanent life policy such as Universal or whole life. 70% of term policies never pay off. I would be happy to discuss your life insurance options and long term care options with you.

  5. Just the fact of the low interest environment we are in and more likely to continue for many years to come. Nearly everyone is seriously underinsured. Its more important now than ever to review and implement proper need of new coverage.

  6. Determining how much life insurance you and your family needs can be a difficult topic. Sometimes it can also be very frightening depending on your financial situation.

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