Determine the Amount of Life Insurance You Need
You know you need life insurance but, how much is enough? According to Insurance.com from Fidelity Investments, there are six general ways to calculate the amount of coverage you need.
| 1. | Income Rule—Have life insurance equal to 6-8 times your gross annual income. |
| 2. | Income Plus Expenses—Have life insurance equal to 5 times your gross annual income plus the total of any mortgage, personal debt, final expenses and special funding needs (i.e., college). |
| 3. | Premiums as Percentage of Income—Spend a minimum of six percent of the primary wage earner's gross income on life insurance premiums. Add an additional one percent for each dependent. Purchase as much life insurance as you can get for the premium amount you determine. |
| 4. | Family Needs Approach—Divide your family's needs into two categories (immediate cash needs and ongoing cash needs). Purchase enough life insurance to cover the total amount of those needs. |
| 5. | Income Replacement—Estimate the value of income you expect to earn during your lifetime considering inflation and anticipated salary raises and purchase an amount of life insurance equal to that figure. |
| 6. | Estate Preservation and Liquidity Needs—Buy enough life insurance to cover taxes, burial expenses, fees and debts in order to maintain the current value of your estate for your family. |