Your life insurance coverage should be worth roughly ten times your annual income.
That’s not as crazy of a number as it might appear. Your income funds your family’s lifestyle and fuels their dreams. It’s how you pay for the house, the car, their education, and all the big and little things that make life run.
So what would happen if your income were to suddenly stop if you became ill or were to pass away?
Could your family afford to stay in the neighborhood? Would a child have to compromise their education? Would your spouse have to get an additional job to cover the daily costs of living?
Life insurance helps answer those questions in the event of your income disappearing.
So why buy a policy ten times your annual income?
First, it can act as a buffer while your family grieves and figures out next steps. A proper life insurance death benefit can allow your family to cover final expenses while they decide how to move forward.
Second, it can help your family pay off remaining debts and start funding future opportunities. This reduces the financial burden your loved ones will face in your absence.
Obviously, there are exceptions to this rule. A stay-at-home parent provides services and care that would be costly to replace and should be covered with that in mind. Families with medical concerns might need to consider a policy worth more than ten times their annual income.
But in general, a life insurance policy for ten times your income will help cover the major expenses your family will face.
Want a more precise estimate on how much life insurance you and your family need? Contact a financial professional. They can offer insights into how much coverage your specific situation calls for!