Just How Much Life Insurance Do You Really Need?

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Slightly giddy with the social stimulation of being back at the office after a year and a half at home, I took advantage of real, live human interaction to find inspiration for this article. Wandering through our work area, without preamble or elaboration, I asked a handful of my teammates, “What’s your number?”

I returned to my desk with three phone numbers, one “5 more wake-ups until vacation,” and a “I’m building a house and broke.” As the financial readiness guy on the team, that wasn’t exactly what I was expecting. It may have been wishful thinking, but I was hoping someone would respond with a retirement savings target -- or, better yet, a specific amount of life insurance coverage.

Having a good grasp on how much life insurance you need -- and then following through and getting it -- is a cornerstone of financial security. I followed up my initial inquiry with a more pointed question regarding life insurance. Unfortunately, my colleagues’ answers were still not very revealing, unless “enough” qualifies.

I hope you, too, have enough. To be sure, let’s look at the potential price tag of a number of major expenses. Understanding those costs can help you answer the most important life insurance question: “How much do I need?”

Raising a child: $233,610. This is the number I led with, and it’s scary. I’m not saying you necessarily need a quarter of a million dollars of life insurance for each kid you have, but you certainly should account for raising them. Social Security provides survivor benefits to children of qualified workers through age 17 (and for their caretaker), so know that there’s a little help on this front when you’re thinking of protecting your loved ones.

Sending a child to college: $88,000. Multiply one year of the College Board’s estimate of the in-state cost of tuition, fees, and room and board at a four-year public university, and you come up with a pretty hefty number. Not all parents are interested in fully funding their kids’ educations, but if it’s on your list, that’s a big number to build into your plan.

Paying off the roof over your head: $384,000. In June, the Mortgage Bankers Association reported this as the record average loan size on a new home. For most of us, our mortgage is the biggest debt we’ll ever have. Be sure your life insurance is enough to pay off your mortgage and other debts.

Replacing the bacon you’re bringing home: $51,480. That’s the average earnings for U.S. workers today, according to the Bureau of Labor Statistics. Whether you may make more or less, it’ll all go with you. What’s your plan for those left behind?

To determine how much you need, do you just take those numbers and add them up? Of course not. But they could all be a part of the calculation you use to get the “right” number. You’ve also got to factor in available assets, your existing insurance and benefits through Social Security, the Department of Veterans Affairs and your employer.

A cautionary note: What’s right today might not be right tomorrow. Marriage, divorce, job changes and other circumstances could force you to rethink your number. Make sure your coverage keeps pace with your life.

Thankfully, there are calculators like the one on the VA website that can do the heavy lifting. Take a few minutes today to see where you stand.

SGLI and VGLI May Not Be Enough

Servicemembers’ Group Life Insurance and Veterans’ Group Life Insurance may not be enough to cover your family's needs. Explore life insurance options with our free tool, which compares rates and matches you to the coverage your family needs.

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Personal Finance