How Much Life Insurance Do You Need? 3 Key Questions to Ask

This article was originally published by Goldman Sachs Ayco.

Life insurance is one of the cornerstones of financial planning. Your insurance needs will depend on your personal financial circumstances and goals. For instance, many people purchase a policy to help ensure that their loved ones will have the financial support they need after their passing.

What’s the appropriate coverage?

Figuring out the proper amount of coverage can be complex. If you’re underinsured, you may not receive adequate protection. On the other hand, if you’re overinsured, you may end up paying too much in premiums. It’s a good idea to reach out to an insurance specialist or financial advisor to find an appropriately tailored life insurance policy.  

That being said, to help you decide on the right type of policy and coverage, consider these three key questions:

• What are your goals for your family?
• What is the annual income your family needs?
• What immediate expenses and future obligations do you want to cover?

A few tips to help you get started

Every family’s coverage needs will be different, but here are four basic tips to keep in mind as you think about your coverage needs.

• Add up your immediate cash needs and compare them to your available cash resources.
• Understand your Social Security benefits. Keep in mind that Social Security is more than a retirement program. If you are working and paying into Social Security, some of those taxes you pay are for survivors benefits, which your family members may receive survivors benefits if you pass away. Your spouse, children, and parents could be eligible for benefits based on your earnings. For more information, visit the Social Security Administration’s Survivors Benefits webpage or speak to your financial advisor.
• Calculate the value of other income sources available to your beneficiaries, which could reduce your life insurance needs. This may include income from your spouse’s employment, savings, investment accounts and more.
• Estimate your family’s living expenses. Some costs may increase while others may go down after your passing.