How Much Whole Life Insurance Coverage Do You Really Need?

Some experts say that in order to arrive at the amount of whole life insurance you’ll need, you should multiply your annual salary by seven or eight. Or estimate the income you will earn from your present age until your retirement age. Or just buy enough insurance to cover your current debts.

Many experts say the best way to pinpoint a smart whole life insurance figure is by means of a “needs analysis” that is equivalent to your family’s short-term needs plus their long-term needs minus their resources. They advise you do an analysis at least once every three years or whenever you have had a major life change such as a new baby, a divorce, or a death.

Whole Life Insurance Calculations - A “Needs Analysis”

• Add up your short-term needs, which are final expenses, outstanding debts, and emergency expenses. Among final expenses are medical, hospital, and funeral expenses. Among outstanding debts are credit card balances, auto loans, and college loans.


• Add up your long-term debts, which include your mortgage and college tuition. Perhaps the best method is to use the present average college cost in the United States and the number of years away your children are from entering college.


• Calculate expenses such as child care, food, clothing, utility bills, entertainment, travel, and transportation. Now add your short and long-term debts and your family maintenance expenses.


• Figure out what resources you have to meet your income needs. Subtract your resources from your total expenses. The figure you get should represent the amount of whole life insurance you should buy.

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