How Much Life Insurance Do I Need?

Considering just a few key points can simplify the task of making decisions about life insurance.

The number of family members depending on you is a major consideration for life insurance.

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If you’ve decided to get a life insurance policy to protect your loved ones, you may be wondering exactly how much coverage you need. Because everyone’s situation is unique, it is best to review your specific needs with a life insurance professional. 

Before you speak to a life insurance adviser, however, these guidelines can help you estimate an appropriate amount of coverage.

What’s your current situation?

Are you married or single? Are you the breadwinner in your family? Do you rent or own your home? Do you have children? Pets? All of these factors will play a part in determining how much life insurance you need.

What is your income?

Your household probably depends on your earnings to help pay at least some of the bills, so it makes sense to buy a life insurance policy that will replace that income after you’re gone. As a general rule, some experts suggest buying a policy that pays out 8 to 12 times your annual income.

Are you a stay-at-home-parent? Most stay-at-home-parents should carry as much life insurance coverage as the working spouse, to pay for services that will need to be replaced, such as home management, cooking, or childcare.

What are other life insurance considerations?

As a general rule of thumb, some experts recommend 8 to 12 times your annual income. However, every situation is different, so it’s a good idea to work with a life insurance agent to create a customized plan for you that may include:

  • Mortgage—calculate the amount needed to pay off your mortgage. If you’re paying rent, determine how much rent your dependents will need to pay until they are able to support themselves. 

  • Debt and financial expenses—add up current debt and non-mortgage expenses.

  • Education—if you have children, estimate the cost of paying for their education (from preschool to college).

  • Burial and final expenses

  • Special circumstances

  • Inheritance or donations*

  • Income replacement 

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* AAA Life and its agents do not provide legal, financial, or tax advice. Therefore, you may wish to consult independent professional advice prior to the purchase of this policy. Life insurance underwritten by AAA Life Insurance Company, Livonia, MI. AAA Life Insurance Company is licensed in all states except NY. CA Certificate of Authority #07861. Products and their features may not be available in all states. Insurance products in California offered through AAA Northern California Insurance Agency, License #0175868, in Nevada by AAA Nevada, in Utah by AAA Utah, in Arizona through AAA Arizona, Inc., License #8301727, and in Wyoming through AAA Mountain West Inc., License No. 172603. The provider of AAA Auto and Home Insurance is CSAA Insurance Group, a AAA Insurer. All policies are subject to policy terms, underwriting, guidelines and applicable laws.