How much life insurance do you need?

How much you need depends on many factors. Of course, a financial professional can help you decide how much is right for you. Or try one of these two approaches.

A relatively simple and quick estimation may be to base the amount of insurance on your current, after-tax income (since life insurance is generally paid out tax free). Multiply that by the number of years your beneficiaries will need the income. Remember to make an allowance for inflation.

For a more detailed approach, determine your personal income replacement needs. Add up your family’s regular expenses such as housing, health care, food, clothing, transportation expenses, etc. This represents the amount that your insurance will need to replace. At a minimum, you’ll want a death benefit amount that, when invested, will provide income annually to cover this amount.

To that you can add expected one-time expenses, such as your children’s college tuition or paying down mortgage or debt. And remember to account for day care, housekeeping, or nursing care as needed. Finally, estimate your own “final expenses” such as estate taxes, uninsured medical costs, and funeral costs.

Withdrawals from life insurance policies may be subject to fees, penalties, and income taxes depending on the specific life insurance policy and the policyholder’s tax situation. Withdrawals reduce the policy value and death benefit.

Life insurance contains exclusions, limitations, and terms for keeping it in force.  For costs and complete details contact a financial professional.  

This information is provided for informational purposes only. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues. 

Please be advised that this document is not intended as legal or tax advice.  Accordingly, any tax information provided in this document is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.  The tax information was written to support the promotion or marketing of the transaction(s) or matter(s) addressed and you should seek advice based on your particular circumstances from an independent tax advisor.

Please consider the charges, risks, expenses, and investment objectives carefully before purchasing a variable life insurance.  For a prospectus containing this and other information, please contact a financial professional.  Read it carefully before you invest or send money.

Equitable Financial Life Insurance Company (New York, NY) issues life insurance and annuity products. Securities offered through Equitable Advisors, LLC, member FINRA, SIPC. Equitable Financial Life Insurance Company and Equitable Advisors are affiliated and do not provide tax or legal advice.

Next in this series:

Tax benefits of insurance