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  • Writer's pictureMike Lewis

How Much Life Insurance Is Enough?

Life Insurance for Different Stages of Life

Whether you’re single, newly retired, or at any stage in-between, life insurance can be an important asset of your financial toolbox.

Using Life Insurance to Build and Transfer Wealth

If you have some wealth built up, you might be interested in using life insurance as a way to maximize the distribution of your assets to your spouse, partner, younger generations, and charities. While a will or trust can assign assets to specific beneficiaries, they are not designed to create wealth so much as they are to preserve it.

If you are still working on accumulating your wealth or for a plan to build wealth, then a wealth transfer strategy using life insurance products may be a great option for you. Life insurance products offer one of the few ways to instantly create wealth and increase the amount passed on to beneficiaries and recipients.

How Much Life Insurance Do I Need?

While it’s difficult to determine how much life insurance you should purchase down to the penny, it is possible to make a good estimate. Consider your current financial situation and imagine what your loved ones will need in the coming years. A general rule of thumb is to calculate your long-term financial obligations and then subtract your assets. The remaining figure is the gap that life insurance will need to fill.

In essence, this general philosophy for finding your own coverage amount is simply your financial obligations minus your liquid assets.

When calculating the amount of life insurance you need, keep the following in mind:

  • Income: Decide for how many years your family would need support and multiply your income by that number.

  • Debt: Add up your current debts (excluding your mortgage) with an estimate of your funeral expenses.

  • Mortgage: Calculate the amount you’ll need to pay off your mortgage.

  • Education: Estimate the cost of sending your kids to college.

If you’re a stay-at-home parent, you may also want to include the cost to replace the services you provide, such as childcare.

From here, subtract your liquid assets such as your savings, existing college funds and current life insurance.

Rather than planning life insurance in isolation, consider it as a part of your overall financial plan. This plan should consider future expenses such as college costs and the growth of your income and assets. Once you’ve determined that information, you can map out the amount of life insurance you need.

At Archbold and Lewis Insurance we want to help you every step of the way and provide valuable information at your request to help you make these decisions. Feel free to stop into either our Bluffton Insurance Office or the Ossian Insurance Office and let us help you make a plan.

Want to get a head start and see what it may cost? Get an instant answer here to see what you can afford: Instant Life Insurance Quote

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