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How Much Life Insurance Do You Need?
By
John W. Hurley
Life insurance is an important component of any comprehensive financial plan. Insurance protects against a risk and the risk that life insurance addresses is death, particularly premature death. There are many parties who have a vested interest should your time come before you planned. These include your survivors (especially spouse and children), your creditors, and the government. Protecting against the risk of death has a price that cost could be high. You need to address the issue of how much life insurance you need with what you can afford. At the same time, you would not want your death to be a burden on your survivors in terms of maintaining a certain lifestyle or settling your estate. So, how much do you need? We will address this issue by describing the following common approaches to calculating life insurance needs:
Rules of Thumb
Income Replacement Method
Enhanced Methods
Annuity Approach
Capital Preservation Approach
Preservation of Purchasing Power
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