But if you purchased life insurance years ago — perhaps before you had a house and children — you may need to bump up your coverage. Your employer may offer a plan, but it may not be enough to cover all your needs.
Everyone’s needs are different, so here are a few questions to consider that should help put you on the right track.
How old are your kids?
If you’ve got toddlers, your life insurance needs look very different from someone with older teenagers. If you die and leave your spouse with a 1-year-old and 3-year-old, he or she has nearly two decades to get through without your income — not to mention college costs. The younger your children, the more coverage you’ll want.
Has your income changed?
When you bought life insurance originally, you may have been 10 years younger and making less money. Now that you’re older and further up the career ladder, you’re probably earning more, so the general rule of thumb — that you buy 10 to 12 times your income in life insurance — may work out to be a higher number now.
If you’re a stay-at-home parent, you may not earn a paycheck, but if your children are small, it would cost money to cover the care you provide. Even when your children are in school, you’d likely need afterschool care or babysitters, so this would be an ongoing expense until your children are older and self-sufficient. Think about what that would cost per year and how many years you might need it.
What do you still owe?
List the expenses in your life that are ongoing — mortgage, car payments and any big credit card balances or private student loans. Debt doesn’t disappear when you die, and your spouse will have less income with which to make payments. Some debt, such as credit card debt, may be forgiven, so to speak, if the estate doesn’t have enough assets to pay the balance — but if a spouse was a joint account holder, she’ll be liable. You may want to have enough life insurance to pay off the major debts, or at least to make it possible for your spouse to make payments for many years, if necessary.
Do you plan to cover college?
No matter how old your children are, if they’re likely to attend college, that’s a massive future outlay. In addition to buying coverage at a multiple of your income, you may want to add extra for anticipated college costs. Consider bumping up your life insurance by $100,000 for each child’s college fund. If you have two kids, that’s $200,000.
What about funeral expenses?
The typical funeral now costs $7,000 to $10,000, which is a big bill to cover if an income-earner has just died. If you factored this into your original total, that’s fine. If you didn’t, you may want to increase your numbers to cover this cost.