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Q. How Much Life Insurance Do I Need?
How much insurance a person needs to carry is directly connected to the amount of your yearly income.
The purpose of life insurance is to help replace the income, to the family, lost when the wage earner dies. If you have people who are dependent on your income while you are alive, odds are they will still need much of that income after your gone. If your check is what pays the rent, the car, the electric bill, your spouse and or children, will still need to pay those bills, but you will know longer be bringing the money home. That is where life insurance plays such a critical role.
To figure out how much insurance you will have to purchase, begin by marking down the amount of your total family income. Under that figure mark your income, then subtract write the difference down on the page. Then calculate the amount of money that you yourself spend and bills that will not continue after your gone (For example your family might need one few cars, the cost of YOUR food, clothes, club dues etc.) subtract that cost from the above figure.
Contact the Department of Social Security, and inquire how much income will come from that source, deduct that amount from the above figure.
If you have any pension plans, retirement accounts and or life insurance at work, calculate the yearly income that could be earned from the interest on those monies (Total Dollars X 5% = Approximate yearly income), subtract that amount from the above figure.
The amount that you are left with is what your dependents will be short each year.
Take that number and multiply it by 20- that is the amount of insurance you will need. Or another way to figure is $200,000 insurance for each $10,000 of income you need to replace.