June 26, 2008

How much life insurance do you need?

You should try to get enough life insurance to provide for your spouse and dependents financial needs if you are gone. You don't want them to be lacking financially but you also don't want to over spend on insurance coverage that isn't really needed. So how do you figure how much insurance you'll need? Start by looking at your annual income and your debts and assets and consider any one time expenses that you expect.

You can easily get a ballpark estimate of your insurance needs by figuring :
(Annual income * .7/ .04 ) + debts - assets + one time expenses = needs
This assumes that 70% of your current income would suffice to meet the needs of your surviving spouse and dependents.

You can make a more elaborate formula by considering other income streams and possible expenses.

Here are a number of calculators and tools that you can use to figure your life insurance needs:

edit : updated 4/4/13  to fix links.

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