How much permanent life insurance do you need?

Figuring out how much life insurance coverage to purchase can be difficult when you are not exactly sure what the future holds. Your lifestyle and obligations may change during retirement. Permanent life insurance can provide premiums that won’t go up as you age; plus it builds cash value that accumulates over time.

Evaluating your needs now and throughout your lifetime

The question really isn’t about how much life insurance you need, but rather how much money your family will need after you’re gone. While your financial situation may change over time, the best you can do is try to figure out what financial support will be needed most for your loved ones. Permanent life insurance can help cover immediate expenses like unforeseen medical bills, funeral expenses, and outstanding debts. It can also help your family with ongoing obligations such as every day living expenses, paying the rent or mortgage, even contributing to an education fund for a grandchild. Once you hone in on your personal finances and goals, determine an amount to help protect your family in case something should happen to you.

A basic formula to help you figure out your life insurance needs

Estimate Current and Future Financial Obligations
Tally up existing resources like earnings, savings, investments, other life insurance
Life Insurance Needed

While there are more detailed online calculators, the simple formula above can help you get a general idea of how much coverage you may need. First, assess your family’s needs, gather your financial information and estimate what your loved ones may require to meet their current and future financial obligations. Then add up all the resources that your surviving family members could utilize to support themselves. The difference between their needs and the resources available is the amount of life insurance coverage you might want to consider.

3 main questions to ask when determining the right coverage amount

What do you want this protection for? While this might seem obvious, it’s important to ask yourself if you want this life insurance benefit to cover the basic costs of final expenses or to help loved ones with more long term responsibilities. There’s no right or wrong. It’s about finding the right balance for your financial needs over time.

Who will you protect? Some people want to protect their immediate family and/or spouse, and others want to leave extra for extended family or a favorite charity. If you have retirement income and self-supported children, a paid- off home and little debt, you may choose just enough to help your loved ones cover final expenses. On the other hand, you may be a sole provider, a care giver to a parent or grandchild, which may lead you to consider a higher amount to cover long term financial obligations.

How much can you afford? While permanent coverage rates may be initially higher than term life insurance, the rates usually remain the same for the life of the group policy. To figure out how this coverage can fit into your budget, start by looking at your main source of income. Are you about to retire, planning to work part-time, on a fixed income? Even if you have to budget more closely to make a monthly life insurance premium payment, the benefit to your beneficiaries in the long run can be well worth the sacrifice now.

This article is provided by New York Life for informational purposes only. This article is not intended to provide tax, legal, financial, or accounting advice. Please consult your own professional for advice specific to your circumstances.