How Much Life Insurance is Enough?
This is a common question and certainly varies with individual circumstances. The most common purpose for owning life insurance is to protect those that depend on one’s income. With that in mind, a potential purchaser might be able to estimate the coverage needed, but it is noteworthy that life insurance is also used for other purposes. Businesses often incorporate life insurance into buy-sell agreements between owners or to protect against the untimely death of a key person. Estate plans for wealthy households often utilize life insurance policies to provide liquidity after the death of the insured. Needless to say, knowledgeable, licensed life insurance agents can be a good source for recommendations, particularly in these special applications.
However, numerous people prefer to independently develop their own estimates of the amounts required. There are some “rules of thumb” such as purchasing coverage equal to 10-15 times annual earnings, and yet another takes this same formula and adds $100,000 to the total for each child’s education. However, a major shortcoming of such heuristic rules is that they are making the assumption that everyone’s circumstances are identical. A website sponsored by over 140 insurance companies and associations (www.lifehappens.org) is a good resource which also covers disability and long-term care insurance as well. The website has an educational focus and a question-and-answer format which is very easy to follow. It also contains several calculators that can be helpful in answering the initial question. Check it out!
If you would like to learn more about these and other wise financial planning moves, please contact us through our Level 5 Financial LLC website or via phone at 719-323-1240. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.