Articles - Archived Expert Advice

Life Insurance: How Much Is Enough?

I've been thinking about life insurance lately. I do have it through work, but how much is enough?

It's great that your employer offers life insurance. But think about this: If you lose your job, you lose that insurance unless you buy the policy and keep it, which is typically more costly than if you purchased a policy on your own with a reputable insurance carrier. However, before you run out to buy additional insurance, think about how much you really need.

Everyone's situation is different, so there's no magical amount of life insurance you should have. A rough rule of thumb is to have about five times your annual salary. An analysis of your own situation may indicate more or less than this amount is needed. There are several factors to consider when determining how much life insurance you need:

• Immediate needs at the time of death, such as final illness expenses, burial costs and taxes
• Funds for a readjustment period, such as to finance a move or provide time for family members to find a job
• Ongoing financial needs, such as monthly bills, day care costs, college tuition or retirement

Ongoing financial needs are the hardest to determine. Even if your survivors will have income to pay for routine expenses, they may be burdened by an existing mortgage, auto loan or credit card debt that will not go away upon your death. After immediate needs and a brief readjustment period are considered, it's a good idea to cover the amount of any existing liabilities. Adult children with special needs may require additional insurance benefits.

It's also a good idea to consider the possibility that your parents may one day become dependent upon you. Your children may be grown and on their own, but parents often require your financial assistance, too.