How Much Life Insurance Is Enough? Do your Maths

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When in the market to purchase life insurance, most consumers do not do enough research into the policies they are buying. A policy that comes with a $250,000 pay out upon the death of the insured may seen like a lot of money at the time, right? That is a quarter million dollars we’re talking about. Surely that’s enough to square away any final expenses a person has and leave enough for their family to manage comfortably without them, even with the sudden loss of an additional income.

Not so, according to one recent survey.

New York Life recently released the results of a survey that polled participants on their life insurance policy amounts compared with their cost of living expenses and other debts they would owe, if they were to die. The survey found that most Generation X’ers need would $450,000 more than what they are insured for in order to settle all their debts after their death.

So how much is enough? While there really is no way of knowing what your final expenses will be until the time comes, there is a simple formula you can follow to get a rough estimate on how large of a policy you should invest in. Larry Rosenthal, president of Rosenthal Wealth Management Group outside of Washington, D.C suggests that your life insurance policy should be worth, at very least, five to ten times your annual income. This means that a person making $50,000 per year should invest in a life insurance policy valued at $250,000 on the low end to $500,000 on the high end. Of course, the more leeway you allow yourself when doing the math, the bigger the financial cushion you will have to fall back on.

The same survey found that 20% of Generation X’ers don’t have life insurance policies at all. While life insurance might not seem like a big deal now while they are young, in perfect health and able to work high paying jobs, their families are going to be the ones left to regret their decision not to carry life insurance on down the road. But Generation X’ers aren’t the only ones getting lax about having life insurance policies. It’s quite common in older age groups as well.

ICR recently conducted a survey of seniors for the Lifeline Program and found that more than 50% of seniors do not have life insurance policies or have let their life insurance policies lapse. The most common reason cited by both poll participants for not having or maintaining adequate life insurance was high premiums. Due to the faltering economy in recent years, more and more people are finding themselves having to cut back on any extras and non-essential items – and those life insurance premiums are usually the first to go.

If you do not currently have a life insurance policy or do have a life insurance policy you’re thinking of letting go, consult with an experienced insurance agent first. They may be able to offer you a good life insurance policy at a rate that is much more affordable than what you thought it would be or more affordable than the rate you have now.

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  • MelissaMarinho

    Ahh, I’ve been looking into getting life insurance the past few months since my family is growing, and I was wondering how much is enough. The quotes I got weren’t so bad for $250,000, but me thinking, “But I REALLY want to make sure my kids will be ok”, I was looking into A MIL! :) I think I’m going to take your advice and consult with an agent instead of searching on my own!

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