How Much Life Insurance Do I Need?

How Much Life Insurance Do I Need?

Life insurance is something you must consider even though it may sound unpleasant. Death is inevitable and we should think about what we’ll leave behind for our loved ones. A good number of people do not fancy preparing for when they die. It is better to be prepared so that you don’t leave your loved ones facing challenges.

Life insurance allows you to leave behind an income that loved ones would otherwise miss when you die. It’s all about taking care of them when you are no longer here with them. Life insurance is essentially an agreement with an insurance company to pay a specified amount after the death of an insured party as long as premiums are fully paid and up to date. You have peace of mind knowing that your loved ones have financial protection after your death.

Who Needs Life Insurance

Generally, life insurance is a good thing to have. However, not everybody requires life insurance depending on their circumstances especially if you have no dependents and have money to cover debts and expenses related to death. The logic is simple: why take upon extra expenses – life insurance premiums – when you are not going to reap the benefits.

You should take out life insurance if you are the primary provider or have a large amount of debts that exceed your assets. The insurance will ensure that your loved ones have peace of mind and some income.

The age factor has been used to dissuade people from taking life insurance. A common myth is that you have missed the opportunity if you didn’t sign up for a policy at a young age. The only difference lies in the fact that younger people will pay lower premiums while older people will pay higher premiums since they are more likely to die. Therefore, insurance companies will readily cover people who are willing to pay the premiums for their risk category.

How Much Life Insurance Do I Need Canada?

From worrying about qualifying for life insurance, the next dilemma for many people is; how much life insurance do I need? Getting a life insurance policy will guarantee coverage for your loved ones. The intention is always to have enough to replace your income and cover the current and future needs of your dependents.

How much life insurance do I need rule of thumb: Experts recommend that people get life insurance that covers about 10-15 times your income. The magic number is all about a life insurance amount that can cover your salary, dependents, debts, and other expenses. However, your financial situation will determine how much life insurance you can sign up for.

One of the best options when looking for life insurance is to buy a term life policy when you are younger and in better health so that it is cheaper and ends up saving you money. Term life insurance is often available from about $20,000 and up to $10,000,000. Market data reveals that people in their 30s, 40s and 50s purchased term life policies of between $250,000 and $1,000,000 in coverage.

How much term life insurance do I need? Even though the available options for term life insurance are between $20,000 and $10 million, the amount of coverage an individual qualifies for is dependent on income and overall net worth. That said, an individual with a net worth of $100,000 may not afford a $10 million life. The amounts of coverage mentioned above is simply how much people choose to buy rather than the ideal coverage for life insurance.

An easy way to determine how much life insurance coverage you need is to:

  • Count all your resources including liquid assets and after-tax income
  • Consider your financial obligations that include expenses and debt. Major expenses include raising children, college tuition, and end of life expenses. Taking care of their higher education will help your children with upward mobility and better quality of life. Debt is yet another big consideration especially if you have family members/dependents who have co-signed a loan to protect them from bearing the burden of repaying debt. Even when they haven’t co-signed, creditors may use your estate to recoup their money taking away an income source. You should leave enough for your dependents to continue paying off your debts especially if they were secured with collateral such as a family car or family home.
  • The coverage gap will be your financial obligations less the liquid assets. It represents how much insurance you can get which must factor in an additional sum to act as a financial cushion. Different circumstances will determine the amount of coverage taken out. Visit for the different options available when signing up for life insurance to match your specific needs.

Additionally, personal situations account for a major consideration in determining life insurance coverage. Personal situations essentially revolve around age and health status which determines how much coverage and how long coverage should last. Older individuals will generally require less coverage since they may have lesser financial obligations and fewer dependents to support. Age is an important consideration used by insurance companies to determine coverage amount. Life insurance premiums generally increase by about 4.5 and 9% for every year of age. The greater the likelihood of death the higher the premiums get. Getting life insurance coverage from a young age will come with affordable premiums. However, age should not be used to put off the decision to take out life insurance.

Lastly, life insurance is all about what you can afford. Some of the options available include term life insurance and whole life insurance.  Term insurance will last for a fixed number of years after which it expires.  Whole life insurance lasts for as long as you are paying premiums. Whole life insurance is usually 5-15 times more expensive compared to term life insurance. The preference for term life insurance is all about affordability. A life insurance policy isn’t of any importance if you are not able to pay the agreed premiums to keep it active. The longer the term lengths and the higher the coverage amounts will directly lead to higher premiums.