Life insurance is an essential part of financial planning, but determining how much coverage you need can be tricky. Here’s an easy-to-use calculator to help you determine how much life insurance you need:
|Let’s calculate your life insurance need|
|How much annual income would your dependents need?||$30,000|
|How much debt do you need to pay off?||$160,000|
|How long would your dependents need financial support?||16 years|
|If you want to help with the cost of college tuition, how much would you like to cover?||$160,000|
|How much do you want to add for burial expenses?||$160,000|
|How much savings do you have?||$160,000|
|If you already have life insurance, enter the total coverage amount||$160,000|
|Amount of life insurance needed||$1,406,600|
Once you have an estimate of your life insurance need, you can start comparing quotes. If your savings and/or current life insurance total more than your needs, you may not need life insurance. If you want to exclude your savings or life insurance from the assets your family could spend, please lower the amounts input.
There are different ways to calculate how much life insurance you need, but the best way is to add up the financial obligations you want to cover (such as income replacement, a mortgage) and then subtract assets that could be used by your family (such as savings or existing life insurance). Other methods include:
- Multiplying your salary by 10 (not always accurate)
- The DIME method (debt, income, mortgage, education)
It’s also important to consider why you need life insurance. According to the 2022 Insurance Barometer Study by LIMRA and Life Happens, the most common reasons people purchase life insurance are to cover burial expenses, replace lost wages, and pay off debts. If you’re not sure how much coverage you need, speak to a financial advisor who can help you determine your needs.
When buying life insurance, it’s important to look beyond just the price. Your health and insurance needs will evolve over time, and a good life insurance policy can accommodate those changes. There are three main types of life insurance: term life, whole life, and universal life insurance. If you have a family member or loved one who financially depends on you, the amount of life insurance you buy should reflect that.
Term life insurance policies work without a cash value and therefore cannot be used as an investment. Permanent life insurance policies, like whole life and universal life insurance carry a cash value that grows on a tax deferred basis. Depending on your goals and larger financial strategy, a cash value life insurance policy may make for an effective investment vehicle. However, if you’re considering life insurance as an investment option, it’s best to weigh the pros and cons against other investment accounts, like IRAs and 401ks. It’s also a good idea to speak with a financial advisor.
With the right information and guidance, you can choose the life insurance policy that suits your needs and budget.
- Canada Life. How Much Life Insurance Do You Need?
- Investopedia. How Much Life Insurance Should You Have?
- Dundas Life. Buying Life Insurance For Your Spouse: What To Know
- Forbes. How Much Life Insurance Do I Need?
- Protect Your Wealth. Couples Guide To Life Insurance In Canada