How Much Life Insurance Do I Need?

The answer isn't really how much life insurance you need, it's how much money your family will need after you're gone. Ask yourself:

• How much money will my family need to meet immediate expenses, like funeral expenses and debts?
• How much money will my family need to maintain their standard of living over the long run?

Life insurance proceeds can help pay immediate expenses including uncovered medical costs, funeral expenses, final estate settlement costs, taxes and other lump-sum obligations such as outstanding debts and mortgage balances. They can also help your family cover future financial obligations like everyday living expenses, money for college or your spouse's retirement, and so much more.

But how do you know if you need $100,000, $500,000, $1 million or more? As a general rule, seven to ten times your annual income is the recommended amount. However, this is just a general rule. The process of determining how much life insurance you need should not be approached lightly. A better way to determine your life insurance needs is to complete a needs-analysis.

Here's how it works. Start by evaluating your family's needs. Estimate what your family would need to meet current and future obligations. Then add up all of the resources that your surviving family members could draw upon to support themselves. The difference is your need for additional life insurance (see diagram below).

Current and future financial obligations

Existing resources Including survivors earnings, savings and investments and life insurance that you already own.

Life insurance needed

This may look simple enough, but calculating one's life insurance needs can actually get pretty complicated. To make it easy for you to get a general sense of your needs, check out our life insurance needs calculator. It'll walk you through the process and provide you with an estimate of your insurance needs in a matter of minutes.

Keep in mind, life insurance and related financial matters can be complex, and each situation should be evaluated on an individual basis. For this reason, we recommend strongly that you contact an Amica Life representative to seek professional assistance in determining your particular needs and the solutions to such needs.