The question of how much life insurance you need is far trickier than you may think. It will take some steps to figure out, but it’s also not really rocket science. So let’s go through it.
The first question you should ask yourself is how much in debt are you? If you do have some debts piled up, and you expect more will be added to the current pool, then you’ll be in need of more life insurance for paying everything off. You wouldn’t want the burden passed off on to your family, now would you?
Next, determine how much you spend every month. If you keep a personal budget tracker, this should be easy. You can also refer to your bank statements for an estimate of your spending.
Knowing your monthly financial needs is essential for the protection of your family. Think about the wife who you’ll be leaving to care for your kids on her own. You might initially think $500,000 would be enough. Yes, that is indeed a lot of money, but think long term. Would that cover your kids’ college fees, their lifestyles and other unforeseen expenses that may arise?
It’s also important that you take into account your savings. If you have been putting money each month and are living within your means, then chances are you have plenty enough money lying around which you can leave your family. This also means you’ll have no problem getting life insurance on a lesser term. On the other hand, if you have no funds set up to cushion future outlays, then you will definitely need more insurance coverage.
The only thing that matters here, really, is how much your survivors need once you aren’t anymore around to provide for them. But for an answer to this, you will first have to add up all of your answers to the above questions.