Published on January 30th, 2023

Life insurance, like most other forms of insurance, is something you hopefully won't have to deal with very often. Once set up properly, it should just be another bill you pay for security and peace of mind. But the importance of having it - and having the right amount - cannot be understated.

Like other insurance types, the terms, conditions and applicable circumstances vary. The proper amount each individual needs depends on their own personal financial situation.

How much life insurance do I need?

How much life insurance you need is specific to your own individual circumstances and standard of living. There are a series of questions you will need to answer to help drill down to a specific number:

Are you the sole income earner? If so, then you'll likely need more coverage than if you were married with two sources of income.
What are your long-term plans? Are you set financially or are you still years away from paying for expenses like your children's college education? Where you are in your life will help determine how much life insurance you need.
How healthy are you? Life insurance companies will want to determine your health before agreeing to insure you. But you should also be honest about how you feel and what your plans are should an emergency arise. It's better to be safe than sorry and that may mean taking out more life insurance than you think you currently need.
How much debt do you have? And who will pay it should you pass? If your home is paid off and kids are grown and out of the house you may need less insurance than someone with the opposite circumstances.
What standard of living are you and your family used? Sure, insurance can cover the basics but if you only insure yourself for that - and are used to living (and have bills) at a higher cost - your insurance amount should be set accordingly.

To help better determine how much life insurance you need, it's helpful to understand what life insurance actually is and why it may be necessary for both you and your family.

What is life insurance?

Simply put: life insurance is insurance that covers you, the individual, in the event of your death. Similar to how car insurance covers your vehicle if there's been an accident and home insurance covers damage or repairs to your dwelling, life insurance covers you monetarily after you have died. In exchange for payments made directly to an insurance company or through other means (like an employer), an insurance company will pay your beneficiaries an agreed-upon lump sum in the event of your death.

You don't necessarily need to die to get paid, however. Depending on the terms and conditions of the insurance plan you have, other instances (like terminal or severe sickness) could also trigger a payout.

There are two primary types: term life insurance (a pre-determined set amount of time in which you'll be insured) and whole life insurance (which remains active for a full lifetime).

Why do I need life insurance?

You need life insurance for the same reason you need all other forms of traditional insurance: to protect you and your family when unfortunate events arise. The financial impact a loved one's death can cause would be significantly reduced if the person had life insurance and was covered for an appropriate amount.

In short: There is no set amount of life insurance everyone should have. It depends on a variety of factors (including how much you're willing to pay in premiums each month).

Source: here.

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