Life insurance is a policy that provides a payout, either as a lump sum or regular payments, if you pass away. The purpose of life insurance is to offer peace of mind by ensuring your dependents are financially supported if something happens to you. 

When exploring your options, it’s wise to seek advice from an independent financial advisor to make the best choice for your situation. 

How much life insurance do you need? 

The amount of coverage you need depends on several factors:

• Your debts: Include your mortgage, car loans, and credit card balances. 

• Your monthly expenses: Consider rent, utilities, groceries, and other regular costs. 

• Dependents: Include the financial needs of your spouse, children, or others who rely on your income. 

• Your income: Factor in how much you earn and how much of that is necessary to maintain your family’s lifestyle. 

It’s essential to account for your family’s ongoing expenses after your death, as their needs will continue. 

Steps to determine your coverage 

1. Check if you already have coverage 

If you’re employed, your benefits package might include a “death in service” benefit, which pays a lump sum, typically a multiple of your annual salary. However, this coverage only applies while you’re employed with the company and ends if you leave your job. 

Also, check for personal life insurance policies, such as ones tied to an old mortgage or savings plan. 

2. Calculate what you need to add up 

You can use online tools, like life insurance calculators (available through companies like NerdWallet or Policygenius), to help you estimate the right amount of coverage. 

3. Determine your insurance gap  

Subtract any existing coverage (like an employer-provided benefit) from your total financial needs. The result is the amount of life insurance coverage you should purchase. 

Rule of thumb: Multiply your annual income by 5 to 10 to get a general estimate of how much coverage you’ll need. 

Finally, decide how long the policy should last. For instance, you might want it to cover the length of your mortgage, until your children are financially independent, or until retirement. 

Review your policy regularly 

Your life insurance needs may change over time, so it’s important to review your policy periodically. Common reasons to update your coverage include: 

• Having another child 

• A partner leaving the workforce 

• Taking out a new mortgage 

• Changing jobs, especially if your new job offers more or less life insurance as part of your benefits package 

• A decrease in market rates for life insurance 

• Significant lifestyle changes that increase your expenses 

Why does life insurance matter? 

No one likes to think about the possibility of passing away, but life insurance ensures your family is financially protected in case the unthinkable happens. Losing a spouse or parent is devastating, but it’s even harder when the surviving family is left struggling to make ends meet. 

Life insurance allows you to offload the financial burden, giving your loved ones the stability they need during a difficult time.