- Income replacement: Life insurance should be sufficient to replace your income for a specified period of time, such as until your children reach adulthood or until your spouse reaches retirement age.
- Debts: Life insurance should be sufficient to cover your outstanding debts, such as mortgages, car loans, and student loans.
- Funeral expenses: Life insurance should be sufficient to cover your funeral and burial expenses, which can be significant.
- Education expenses: Life insurance should be sufficient to cover your children’s education expenses, if that is a financial goal.
- Assets: Life insurance should be sufficient to help provide for your family’s ongoing needs and help maintain their lifestyle, taking into account any existing assets or investments you have.
A general rule of thumb is to purchase life insurance coverage that is equal to 10-12 times your annual income. However, this may not be appropriate for everyone, so it’s important to work with a financial advisor to determine the appropriate amount of coverage for your specific situation.
The appropriate amount of life insurance varies based on your individual circumstances and financial goals. It’s important to periodically review your life insurance coverage with a financial advisor to ensure that it still meets your needs.