Life Insurance: How Much Is Enough?

When an insurance agent touts a life insurance policy with a big seven-figure death benefit, you may have reason to be wary. Agents are paid on commission, and the more they sell, the more they earn. When that big-money policy translates into a fatter commission check for the agent, you have a right to a second opinion.

One rule of thumb for life insurance is that you should aim for 6 to 8 times your annual income. If you earn all or most of the income in your family, you might use the high end of that estimate; if your spouse also works, you might go for the low end. But that approach can be too blunt, say many insurance experts, like using a carving knife when you need a scalpel. There are many factors other than your current income that should go into figuring your life insurance needs, including the size of your mortgage and other debts. Another major element in the equation is the number of dependent children you have and whether you have saved anything toward their college expenses.

To get a clearer picture of how much life insurance you need, try the calculator available at the Life and Health Insurance Foundation for Education (http://lifehappens.org/life-insurance/life-calculator). Plug in the appropriate information and you’ll get a good estimate of how much you insurance you need. The site also provides information on health, disability, and long-term care insurance, as well as tips on the insurance needs of small businesses, such as business continuation insurance.