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Life Insurance for Financial Protection

How much Life Insurance do I need?

If you’ve decided that you need life insurance, how do you know how much is enough to protect your family financially in the case of premature death? The amount of life insurance you need can be a difficult question to answer, but this article will help you understand what to expect before speaking with your insurance advisor. The appropriate amount of coverage varies for each circumstance, and the various rules of thumb, such as multiplying your income by 10, are not an effective way of determining how much you really need.

It is crucial to have the correct amount of coverage, as the money your beneficiaries receive from your death benefit will help them pay any tax liabilities and other expenses that may arise upon your death as well as help them sustain their lifestyle after you have passed away. We will walk you through a “needs-based assessment”, which will ultimately help you gain a better understanding of how to protect your family with life insurance.

Needs-Based Assessment

A needs-based assessment considers cash and income needs that your beneficiary or beneficiaries will need to sustain their current lifestyle. Cash needs include funeral fees (last expenses), probate fees, tax liabilities, legal fees, outstanding loans, a mortgage redemption, an emergency fund and an education fund for any minor children. Income needs take into account the family’s current annual income and the percentage of this income that your family will need to maintain their current lifestyle. For example, you can decide that upon your death, with the cash needs met, your spouse will need 50% of your income while any children remain dependent, and 30% thereafter.

Within the above-mentioned cash needs, some may be categorized as permanent or temporary. Temporary cash needs are the costs that most people pay out during a set period such as a mortgage and their children’s education. On the other hand, permanent cash needs are costs including last expenses, probate fees, tax liabilities, legal fees, and an emergency fund that are required at any stage of life. It is worth considering purchasing some amount of permanent insurance that will last your whole life to cover these permanent needs.

Application of the Needs-Based Assessment

Now, there are various things to take into account when you’re determining the amount of insurance you may need to cover your family’s immediate and ongoing needs upon your death.  In addition to determining these needs, it’s important to consider things such as:

  • How much savings do you have put away?
  • What insurance do you already have personally?
  • Do you have insurance through a work plan?
  • What benefits are available from the government?


Now What?

Now that you understand the basics of needs-based assessments, you know that having the right amount of coverage is key in protecting your family financially. Without the right coverage, your family could have trouble paying for necessary costs such as legal fees and last expenses. If you would like to learn more about how much life insurance your family needs, speak with your insurance advisor today.

Submitted By: JR Moy

Financial Advisor – Love & Persson Group