“How much life insurance do I need?”

“How much life insurance to do I need?” is a common question asked when a person thinks of buying life insurance. While there is no best single answer to this, there are a few factors that may be taken into account when deciding to buy life insurance. One might ask oneself the following questions:

- What is the current household expenses that the breadwinner of a family contributes to his family through his income, which will need to be replaced in the unfortunate scenario of the breadwinner of the family not being around?
- What time horizon—how long does one want his family’s expenses be taken care of?
- How much unpaid debt (such as mortgage) that one has, which will need to be paid by the family, in case something unfortunate were to happen?
- Is the income of the family jointly earned or is it a single person earning for the family

Life insurance is a concept of financial protection for the family, financials protection in the way of income replacement, shall the income generating member of the family is unfortunately not around—therefore estimating the income to the family is the most important thing, while assessing how much life insurance would be needed by an individual.

Once an individual has answers to these questions, then he or she should have a better idea of how much insurance he or she should buy. It is also true that life insurance requirement for a person may be different from that of another. Some individual may want just enough money for the family to pay the debts because his or spouse also earns a decent income and can still support the family. Some may want to have enough insurance to also support the family for the first few years while the family is still trying to get used to the new life. Others may not want the insurance to cover not only for the first few years of living but for 20 or 30 years after the main breadwinner is not around or at least till the kids finish their university.

Your life insurance need depends on your current financial situation and your future financial plan for your family. As such you need to have the right amount of insurance cover—not too low neither too high. However, it is very important that you make sure you do not have too low life insurance coverage, as then it would defeat the purpose of providing complete financial protection to your family.

Whatever amount you may think of buying, however, bear in mind that your calculation today might not be accurate 10 or 15 years down the road because your income and your responsibilities keep changing with time. One thing that will not change, though, is that having life insurance is better than having no life insurance at all.

Next week- “What are the costs and benefits?”

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