How Much Life Insurance Do I Need? | Full Guide

Even if you’re a stay-at-home parent, you’re still valuable to your family financially. Assuming you are responsible for two small children. If you die, your spouse will have to continue working, which means the kids will require a nanny or daycare. You may not require a large life insurance policy, but you can purchase one that meets your family’s financial needs.

A life insurance policy is a legal agreement between you and an insurance company. In exchange for your premium payments, the insurance company will pay your beneficiaries a great sum known as a death benefit after your death.

The money remitted to your beneficiaries can be used for whatever purpose they choose.

In this article, we’ll show you how to obtain life insurance; how much life insurance you need, and the best type of life insurance to go for.

Having life insurance as a safety net can guarantee that your family can stay in their home and pay for the things you planned for.

What is Life Insurance?

Forbes defines life insurance as a contract between you and an insurance company where the insurance company agrees to pay a huge sum of money known as a death benefit to your beneficiaries after your death. It can further be described as a contract between the insurance policyholder and an insurer, where the insurer agrees to pay a specific sum of money upon the death of the insured person. There are specific cases like terminal illness or critical illness that can also trigger the payment.

The money paid to the beneficiaries can be used for anything whatsoever. Having life insurance ensures your family doesn’t get financially trapped at devastated at the news of your demise.

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Types of life insurance

There are two main types of life insurance: term insurance and permanent life insurance.

#1 Term Life Insurance

Term life insurance provides coverage for a certain amount of time and the premium payments stay the same amount for the duration of the policy. This type of insurance is the most popular and is sold to 71% of purchasers, according to Insurance Barometer Report. Term life insurance allows you to choose policy lengths that range from 10, 15, 20, 25, or 30 years.

If the insured dies within the policy’s term, the beneficiaries can file a claim and receive the death benefit money tax-free.

When the policy’s term expires, you may be able to renew the coverage in one-year increments, which is known as assured renewability. However, the rate of renewal will increase with each passing year.

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#2 Permanent Life Insurance

Permanent life insurance provides lifelong coverage. It lasts for the duration of your life and usually builds cash value. The cash value component adds up on a tax-deferred basis over the life of the policy.

This type of life insurance allows you to borrow against the policy’s cash value or make withdrawals. Whenever you decide to make a withdrawal, you can get the cash value minus any surrender charge.

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Most times, the cash value may build slowly over many years, so don’t count on having access to a lot of cash value right away.

Who Needs Life Insurance?

Life insurance can play an important role in a well-rounded financial strategy. A life insurance policy allows you to name one or more beneficiaries who will receive a death benefit if you die. Depending on your needs, the amount of this death benefit can range from $10,000 to more than $1 million.

To gain insights into why you need a life insurance here are some determining factors that should convince you:

  • If your partner lives off your income: Whether or not you have children, your spouse may be left without income if they rely solely on your earnings. If you were to pass, you might want to consider their expenses and whether or not they could start working.
  • If you have young children: According to the USDA, the average cost of raising a child from birth to the age of 17 is $233,610. If you have children who will need food, shelter, clothing, and an education after you die, you should think about purchasing life insurance.
  • If you contribute to your family’s mortgage or college expenses: If you and your spouse have a mortgage or are paying for large expenses such as your children’s college, obtaining a life insurance provides financial ease to your loved ones when you’ve finally left this world.
  • If your family would have a difficult time paying for your funeral: To most people, the median cost of a funeral in the United States is $7,640. If you think your family might have difficulty paying funeral expenses when you pass away, you may want to purchase a life insurance policy so that your loved worry about how to finance your funeral when the time finally comes.
  • If you would leave your heirs debt: If are in debts and you’re sure the debs might linger even after your demise, taking out a lie insurance policy protects your spouse or any person you share a particular account with from inheriting those debts and eventually having them pay off the debts forcibly.
  • If you have business partners who might fail without you: If your presence in your business is the only shining light and hope, you may want to factor them into your life insurance policy in order to save the business in case of sad eventualities like your death.
  • If you have an adult special needs dependent who you care for financially: Some parents provide financial support for their special needs child for the rest of their lives. If this describes you, a life insurance policy could ensure that your child has everything they need in the event that you die.

In a nutshell, if you are a family man, an empty nester, a small business owner, a retiree or an older adult without savings, you need a life insurance.


What Does Life Insurance Cover?

Life insurance covers the beneficiaries of the policy to a great extent as it provides financial benefits in form of cash payout to the beneficiaries of the deceased. This form of insurance covers for:

  • Income replacement during the insured’s working years
  • Final expenses like a funeral, casket and burial plot (or the cost of cremation)
  • Mortgage loans, car loans and other debts
  • Future expenses like college tuition and children’s activities
  • The cost of childcare or household help
  • Utility bills, groceries and other basic living expenses
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Hitherto, life insurance is meant to provide beneficiaries with financial support in the event of the insured’s death. Typically, the beneficiaries can spend the proceeds wherever, however, and whenever.

Why Do People Buy Life Insurance?

Life insurance offers a great level of support and comfort to the beneficiaries in the event of the death of the insured. According to Forbes, covering funeral and final expenses is the first reason why people buy life insurance. On a broader scale, most persons go for life insurance as a way of supplementing retirement income, transferring wealth, replacing lost wages/income, and taking care of the financial obligations of the beneficiaries. Having life insurance provides your loved ones with financial security.

How Much Does Life Insurance Cost?

The cost of life insurance varies greatly based on a number of criteria. The sort of life insurance you get will be one of the most expensive considerations. For example, for the same amount of coverage, a term life insurance policy is substantially less expensive than a permanent life insurance policy.

Here are some of the most common factors affecting life insurance rates:

  • Age. The younger you are when you buy a policy the less, you’ll pay. That’s because your chance of death is lower.
  • Sex. Females have a life expectancy that is nearly five years longer than males, according to the National Center for Health Statistics. This means that men generally pay more for life insurance than women (except in Montana where insurers must provide gender-neutral life insurance rates).
  • Health. Your health has a major effect on your life insurance rates. The insurer will evaluate your past and current medical conditions in order to calculate your life expectancy.
  • Lifestyle. Your driving history (such as a DUI conviction), criminal record, and dangerous occupations and hobbies (such as scuba diving) can all result in higher life insurance rates.

Other factors that add up to the cost of life insurance are family health history, occupation, hobbies, state of residence, tobacco status, amount of coverage.

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How Much Life Insurance Do I Need?

Most financial experts will advise you to have ten times of your income in life insurance coverage. Nonetheless, there is no limit to how much life insurance you need. The factors that can better guide the decision of how much life insurance you need is: your income level, your number of dependents, and your dependent’s specific needs now and in the future.

It is best to determine how much coverage you will require to provide for your beneficiaries in the case of your death. This may include funeral expenses, costs connected with supplementing your income for your family, educational fees for your children, and debts. Once you’ve decided how much you want to leave to your family, you may search around for the best rates.

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If you earn $50,000 annually, you should strive to purchase life insurance coverage of $1 million.

While 10x to 20x your income is a good starting point, depending on your lifestyle and demands, you may wish to get even more coverage. Individuals with a lot of debt, as well as those with many children, may wish to aim for a bigger death benefit.

How To Get A Life Insurance

Each company assesses your risk in a different way; some are more involved than others. To determine if you qualify for their life insurance policies, most companies require you to go through a series of steps.

Step 1: Fill out an application

What life insurance companies ask on the application:

  • Name
  • Height
  • Weight
  • Health history
  • Family health history
  • Lifestyle habits
  • Annual income

It is essential that you answer these questions truthfully because the company has the right to cancel your policy and keep any premiums you have paid if they discover you lied on your life insurance application.

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Step 2: Undergo a physical exam (for some policies)

Some life insurance companies just ask health-related questions on their application. But others may require you to undertake a medical exam to evaluate your overall health. What might be included in the medical exam:

  • Review your medical history and family’s medical history.
  • Review your habits (such as smoking, drinking, exercise, diet).
  • Check your height, weight, and blood pressure.
  • Take a blood sample.
  • Take a urine sample.
  • Perform additional tests (such as EKG, treadmill test, chest X-ray).

Step 3: Pay the premium for your desired policy

To obtain life insurance, you must choose a death benefit equal to your potential lost income. You must also choose a life insurance policy that you can afford, which means that the premium is something you can afford to pay on time for the duration of the policy. If you try to get a death benefit that is too large in comparison to your risk level, you will most likely be denied a life insurance policy. If you choose a premium that you cannot afford and then stop paying premiums for the policy, your policy will be canceled.


Life insurance can provide peace of mind by protecting your dependents in the event of your death. If you have young children or a spouse with limited earning potential, enrolling can be one of the best financial decisions you make. Still, for those who do not have dependents and simply want to build long-term wealth, cheaper, less restrictive options should be considered first.

Taking the time to research the best life insurance companies and your various coverage options can assist you in finding the policy that is right for you.


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