The Best Asset You Have is Your Health

Calculating Life Insurance Coverage Needs

Calculating the exact amount of life insurance you need is not an exact science but estimating a reasonable coverage amount means figuring out your current financial situation and then projecting what your loved ones will need in the future.

Financial experts often recommend multiplying your annual salary 5-10 times to arrive at a ballpark figure of coverage needs. That is certainly a good start but it begs the question; will it be enough?

This basic salary multiplication rule does not take into account your family’s detailed needs, nor does it consider any savings, assets or existing life insurance policies you may have.

That is why we are providing this detailed formula below to customize a coverage amount that may be closer to your reality:

Finding the Best Number:

A more simple yet complete formula to calculate your desired coverage amount:

Financial Obligations – Liquid Assets

  • Current financial obligations: Add your current annual salary ( times the number of years that you want to replace your income) + future education expense + remaining mortgage + any other debts + your funeral expenses.  Also add up the cost of services that you provide if you are a stay-at-home parent for e.g, child care.
  • Liquid Assets: From the above totaled amount subtract any savings you may have + current life insurance coverage that you may have + existing college funds.

Use this formula as your base analysis and then customize your coverage amount as needed.

We all know life isn’t forever but why fear the inevitable? Being prepared for the future by facing our mortality sensibly and with a sound financial plan will keep our memory alive and make life easier for those who depend on us.

How much life insurance do I need?

Facts of Life
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