How Much Life Insurance Do I Need?
One of the first steps in buying life insurance is determining how much life insurance you need. Life insurance is a simple concept — you buy a policy that pays to your beneficiary or beneficiaries when you die — but the decisions of what kind life insurance to purchase, how much of a death benefit and how much you pay are extremely complex.
Covering funeral and final expenses is the No. 1 reason people buy life insurance, according to a 2020 survey by LIMRA and Life Happens, both industry-funded groups. (People could choose multiple reasons.)
Too many Americans live with a life insurance coverage gap, leaving their loved ones’ financial security at risk. According to LIMRA, here are some of the other reasons people choose to have life insurance:
• Burial/Final expenses: 84%
• Supplement retirement income: 57%
• Transfer wealth: 66%
• Help payoff mortgage: 50%
• Replace lost wages/income: 62%
• Home expenses: 48%
• Tax advantaged investment: 45%
• Estate taxes: 43%
• Pay for college: 37%
• Business purposes: 28%
• Charitable gift: 27%
The need to provide loved ones with financial security has heightened since the pandemic. A recent LIMRA survey found that 44% of households said they would face financial hardship within six months if the primary wage earner were to die prematurely. For 28% of households, financial hardship would hit within one month.
Frequently Asked Questions About Life Insurance
How do I calculate how much life insurance I need?
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You can calculate how much life insurance you need by using this formula.
Financial Obligations (annual income multiplied by the number of years of coverage)
+Plus Other Anticipated Expenses (Funeral expenses, anticipated debt at time of death, etc)
-Minus Savings
=Equals your insurance need
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What kind of life insurance policies are available?
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There are two basic types:
Term life, which is good for only a certain period of time, and,Whole Life Insurance, which is “permanent” insurance that also includes a buildup of value in cash in addition to your death benefit. You can borrow against your cash value. You can even take out some of that cash value, but your death benefit will be reduced.
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Bancorp’s insurance experts are available to provide you with a free review and consultation. Contact Us – Bancorp Insurance Call 800-452-6826
Disclaimer: This content is provided for general information purposes and is not intended to be used in place of consultation with our agents.
