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How Much Life Insurance Do I Need?

How Much Life Insurance Do I Need?

June 30, 2022

Many people often wonder how much life insurance is needed, down to the penny, but there's a way to estimate how much you'd need. In general, you should add up your long-term financial obligation, which would be your mortgage payments, college loans, etc., then subtract your assets. What's left is the gap that life insurance will fill. We have our guide below to help you confidently make the financial decision right for you. Contact us if you have any questions!

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How to Calculate How Much Lie Insurance is Needed?

Wondering, "How to determine life insurance needed?" You can manually calculate how much insurance is needed by taking your financial obligations and subtracting your liquid assets. 

First, add up the following items to know your financial obligations:

  • Annual salary multiplied by the number of years you're looking to replace that income
  • Mortgage balance
  • Other debts
  • Future needs like college fees and funeral costs

Then, subtract your liquid assets like your savings, current life insurance policies, and existing college funds. This number is the amount of life insurance needed.

Additional Ways to Estimate How Much Life Insurance is Needed

To quickly estimate your life insurance needs, you can follow a few methods below to get an idea of how much is needed:

  • Multiply your income by 10. This is only a guideline, and it doesn't consider family needs or your current savings.
  • Purchase 10 times your income plus $100,000 per child for college expenses. This helps since it's adding additional coverage for education expenses.
  • Use the DIME formula. This makes you take a more detailed look into your finances. Dime stands for debt, income, mortgage, and education.

    Add up your debts other than your mortgage, and include estimated funeral expenses. Then decide how many years your family needs support, and multiply your annual income by that number. Calculate how much is required to pay off your mortgage. Lastly, estimate the cost of education and sending your kids to school and college.

    This is an excellent way to get a more well-rounded view of your needs. Remember, this doesn't include life insurance coverage, your current savings, or any unpaid contributions stay-at-home-parents make.

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