How Much Life Insurance is Necessary?

A recent survey conducted by the National Insurance Institute suggests that the majority of Americans do not have sufficient life insurance, and many individuals are completely without coverage. The research further indicates that the primary reason consumers do not select the appropriate level of protection is due to the fact that there is a widespread lack of awareness of future needs. With the current economic times, it is now more important than ever before to ensure that a family's needs can be adequately covered. A general rule is often that individuals should have at least 2-3 times their annual income in protection, but consumers should consider the following key areas when determining how much life insurance they truly need.

Purchasing a term life policy intended to pay off a mortgage or other debt is certainly a good idea, but few consumers stop to think about the future costs associated with the assets they are trying to protect. The sudden loss of an income can make it very difficult to pay household expenses, and it is important to understand that there are other costs other than the actual mortgage payment. Property taxes, unexpected repair bills, and maintenance should also be factored into the amount of money that will be needed to comfortably take care of a family in need. Other major purchases that must be made in the future, such as that of a car or home, should also be reflected in the amount of life insurance chosen.

It is no secret that raising children is an expensive endeavor, and an important component of calculating the amount of life insurance necessary is current and future educational costs. In addition to paying for college for older children, families also must budget for extracurricular activities, clothing, and the wide variety of other costs that parents must manage. Many families that rely on two incomes are well aware of how difficult it would be if one of them were to disappear, but even a situation in which one parent stays home warrants sufficient protection. Too many individuals fail to realize that if something happens to the parent that stays home, childcare and housekeeping costs will become necessary.

Planning for retirement is a task that many individuals attempt to put off as long as possible, but a very crucial piece of the puzzle is life insurance. The average life expectancy of Americans is steadily increasing, and many families still have a number of years left after they retire. A family needs to seriously consider their aspirations and intentions during retirement, and then an appropriate amount of coverage should be selected that will still allow the surviving spouse to continue. Social security benefits and other sources of fixed income can be drastically reduced in the event of a person's death, and this should be included in the calculation.

Maintaining the appropriate amount of life insurance is obviously an ongoing process, and certain lifestyle changes will warrant making the necessary adjustments. Getting married, having a baby, and purchasing a home are only a few of the many occasions that indicate it is time to review coverage. While an individual probably does not want to pay for more protection than they actually need, when estimating it is always better to aim on the high side. After all, life insurance is one area in which everything should be done right the first time in case there isn't a chance to change in the future. Although the income multiplier rule used to be perceived as an effective way to select a proper amount of coverage, the simple fact of the matter is that many families require much more protection and should consider all of these areas when deciding exactly how much.