Life insurance is important to protect those you love. You have heard that it can provide financial protection to them when they are grieving you and take away that worry and burden. You want to protect your loved ones and you have decided that you want to get life insurance. You walk into your local agency, sit down, and the agent asks how much coverage you would like. Huh? You have no idea. Let’s break it down together.

Do you have any debt? When you pass that debt doesn’t go away and could fall on your loved ones. It is important to have enough coverage to cover that debt in full. For this example, let’s say you have $20,000 in student loans.

Do you have anyone relying on your income? If you have children or a spouse that depends on your income then you may want to include income replacement to help them with everyday expenses and bills that you previously paid. Typically this amount would be determined by (Income * .70)(10), which covers your gross income for 10 years. For this example, lets say you make $100,000/year, (100,000 * .70)(10)= $700,000.

Do you have children who you want to leave education assistance to? You can include an amount in your policy to help your children with college costs. Typically this would be $100,000/child as you are unsure of where they plan to go and how much that will cost per year. This amount will either fully cover or make a large dent in their student costs. For this example, let’s say you have 4 children, so that would be $400,000.

Did you want to include funeral costs? Depending on the type of end of life decisions you have this can range from $2,500 to upwards of $20,000. Let’s say for this example that you want to be buried and have a full viewing and service that costs around $17,000.

What does all of this add up to? $20,000 + $700,000 + $400,000 + $17,000 = $1,137,000

The agent recommends that you get a $1 million policy. WHAT?! You never imagined that you would need that much coverage but everything the agent is saying seems to make sense. You decide to take his advice and are able to sleep sound at night knowing that everything will be covered in the event of your passing.

But what if you don’t have 4 kids, make $100,000 a year, and have student debt? Do you still need a $1 million dollar policy? No. You wouldn’t because you wouldn’t be covering the things that the previous example is and in the way they are. Let’s run through another example.

Do you have any debt? Nope, you never went to college and you also don’t keep any credit card debt or loans.

Do you have anyone relying on your income? You do have children but your spouse is the breadwinner. However, your company has the better benefits and so your whole family uses your health, vision, and dental insurance. In the event of your passing, these things would no longer be available to your family and they could be at a loss. We should include this to help cover those losses. Lets say you make $35,000/ year, (35,000 * .70)(10)= $245,000

Do you have children who you want to leave education assistance to? You happen to live in a state that provides free education for so many years so you don’t feel this is necessary.

Did you want to include funeral costs? Sure, but you know you want to be cremated with no services. Let’s say this costs $3,000.

What does all of this add up to? $245,000 + $3,000 = $248,000

The agent recommends that you get a policy valued at $250,000.

Did you see how with different choices or needs the amount of the policy can differ drastically? Everyone is going to have different coverage needs and different choices when it comes to what they include in their policies. These are only two examples of thousands.

The most important thing to remember is that it is not about the cost of the policy as much as it is about the cost of not having the right coverage to protect your loved ones.