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How do you figure out how much life insurance you need? A ballpark measure
sometimes used is between five and seven times current net income. But to work
out the specifics of your own situation, you'll want a financial needs analysis.
It gives you a picture of the capital your survivors need when you die. It looks at
assets that would be available to them, liabilities they would have to deal with, and
continuing family needs for income. (See the worksheet on page 38 to work out an
estimate of your needs.)
A qualified life insurance agent can help you work out a more comprehensive
financial needs analysis.
How much is enough?
GETTING STARTED
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The concept of insurance goes back to the days of the Romans, but it wasn't
formalized until the 18th century. Essentially, it's a means of spreading financial
risk among a large number of people who pay into a fund or pool. In this way, the
cost is minimized for those who suffer an unexpected misfortune.
Life insurance is a way to protect your survivors and dependents against financial
hardship. A life insurance contract or policy is a legal agreement between you and
an insurance company that guarantees payment of the face value of the policy,
upon death.
Life insurance: what is it?
FACT: A valuable feature of life insurance is that the benefit paid to your beneficiary is
almost always tax free.
