How Much Life Insurance Do I Need?

A variety of methods are available to calculate the amount of life insurance that will meet your needs.  It seems that every advisor, financial columnist and relative has a formula they believe is the best.  After reviewing the methods above, choose the one that makes the most sense to you.

  1. Capital Preservation vs. Liquidation
  2. How Much Life Insurance Do You Need- Worksheet
  3. Life Cycle Method
  4. Two Basic Methods
  5. The Human Life Value Approach

As you create your insurance plan, remember that life insurance is not for you, it is for your survivors. Therefore, typically, you will only have a need for life insurance when you are leaving behind someone or some entity that is dependent on your income.

No method is perfect. Life brings many changes and your needs will change with them. The more assumptions you make, the more complex you will make your planning, and the more likely something will not work as planned. This does not mean that you should only use the simplest methods — it is to give you a concept of why it is important to actively participate in all of your planning, fully understand it, and monitor it. After all, it is your money. Remarkably, the simplest formulas can often be the best.

The How Much Life Insurance Do You Need- Worksheet (click to view) is designed to assist you in calculating how much life insurance is needed for your survivors. The calculations include the income needs of survivors, ongoing household expenses, other one-time expenses that are incurred such as funeral costs, and assets that can offset life insurance needs.