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How Much Life Insurance Does my Family Need? — Needs Analysis Guide

Knowing that your family needs life insurance is an important first step. Figuring out how much life insurance your family needs is also essential. No two families are the same and each one has their own needs.

Before you start searching for life insurance, you should figure out exactly what your family needs so they can be protected. Use this guide to help you determine how much life insurance to get for your family depending on your needs.

How Much Life Insurance Does my Family Need? — Needs Analysis Guide

There are different needs that life insurance takes care of. The main purpose of life insurance is to replace the lost income and to offer protection for the family of the insured. Now, not everyone has the same kinds of needs. There are some needs that can be covered by life insurance, so you should evaluate what you and your family need personally.

Life insurance is very personal so not every person has to have every one of these needs covered. That’s simply because not everyone has the same needs.

What Needs Should Be Covered by Life Insurance?

Loss of income

The main reason people get life insurance is to replace their income if they happen to pass away. Then, their family can still survive without them. Often, people use the rule of getting 10-15 times your income worth of life insurance. This helps your family to have the annual income that they need to survive. If you’ve had the misfortune to go through the loss of a family member and are now facing a delayed life insurance claim, you should get in touch with a life insurance attorney to help you put your case together.

Stay-at-home-parent duties

If one of the spouses stays home with the kids, they are still providing for the family. If the stay-at-home parent is lost, there is a lot to pay for. This includes a nanny, someone to clean the home, a cook, someone to transport kids to or from school and activities, and more. This can all add up quickly. Calculate how much you would need to spend on all of those tasks and factor that into your life insurance policy.

Dependents

Your dependents maybe your children or your parents if they rely on you. If you have children, you know that it costs a lot to pay for all of their expenses. If you pass away, those expenses will be left to your spouse. That’s why it’s important to have life insurance to help cover those costs. It costs about $14,000 to raise a child each year. To find how much you need to raise your children, multiply $14,000 by however many years there are left until your child is 18 or no longer financially dependent on you.

End of life expenses

When you pass away, your family will be left to pay for any end of life expenses. This can include hospice care, medical care, and funeral and burial costs. Funeral and burial expenses alone can be $7,000 to $10,000. Because of this, you want to factor this into your life insurance policy. You don’t want your family to have to come up with that amount of money suddenly or while they’re grieving.

Debt

If you have outstanding debt, including a mortgage, when you pass away, you should account for those payments. Those debts will need to be paid for by whoever you are survived by. If you pass away, you will need to make sure your family has enough to finish paying off any debts that you had. To figure out how much this will cost, add up the remaining debts you have. That amount should be a part of your life insurance policy.

College expenses

Anyone who has kids should consider putting money away so that they can go to college when they graduate high school. This should be included in your policy. To figure out how much this will cost, you should look at the average cost of college tuition. Keep in mind that out-of-state private colleges cost more than in-state or public colleges. You should also go above the estimated amount to leave space for inflation. Giving your kids the opportunity to go to college gives them a great privilege.

Everyday expenses and comfort

You want to leave your family with the money they need for their everyday expenses. This includes anything you pay for on a regular basis, such as groceries and bills. Money for medical expenses is also a good idea. To figure out how much money should be included here, add up your monthly expenses. Beyond that, your family should be able to live comfortably. You might include money for discretionary costs. This might include a vacation or a special event.

What Else Should You Consider When Getting Life Insurance?

Another important thing to keep in mind is the income of the surviving family members. If both spouses work, there are going to be fewer financial needs because money will still be coming in. You will still need to evaluate that income and see how each spouse could survive with the other spouse’s income loss.

If you are self-insured, you do not need to get life insurance. If you’re able to pay for yourself and your family to survive, life insurance isn’t necessary. You might be single and have no dependents or you might have a lot of money put away.

How to Calculate the Life Insurance You Need

First, you should figure out how much income you have after-tax and what assets you have. Then, you need to add your expenses and debts. This is what your family will be paying for and it’s their financial obligation. Next, subtract the financial obligation from the liquid assets. This gives you your coverage gap. That’s how much life insurance you need. You can always use a life insurance calculator to determine your needs. 

Closing

Life insurance is very important, so it’s essential that you get the right policy for the needs of your family.

Although a life insurance broker based in the UK, you may also find this in-depth article from Reassured very insightful.

Keep the needs listed above in mind as you look at life insurance so you know exactly what to get. You want to get enough that your family members can continue living their lives comfortably.

Most people in their thirties and forties choose policies with $250,000 to $1 million in coverage. Term life insurance policies are available with $20,000 to $10 million in coverage. You have a lot of options so you can choose what will work best for your family’s needs.

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