How much life insurance do I need?

The question of how much life insurance you need can stir up an emotional as well as economic bees’ nest. We've heard sentiments ranging from, “I want my family to have everything in abundance,” to “I don’t want my spouse to get rich from my death.”

Whatever your thoughts may be about providing for your surviving family, we recommend you start with having enough life insurance to cover basic expenses.

This requires some number crunching on your part. You’ll want your family to be able to:

• Pay off mortgage— It’s a good idea for your family to pay off your mortgage with your life insurance proceeds. Doing this will give them a place to live and eliminates a large monthly expense.
• Pay off other debt— After the mortgage, there may be other sizeable debts that should be cleared, like car loans, student loans, etc.
• Buy a house— If you don’t already own a house (no mortgage), your surviving family may want to use the proceeds to buy one.
• Set aside college costs— College is expensive. Using life insurance proceeds to fund college expenses frees your surviving spouse from the worry about how they are going to pay for this big ticket item.
• Set aside living expenses— Part of the proceeds should go toward current and future living expenses. How much do you spend each month? How much do you save each month? You can adjust the amount needed, depending on variables such as your spouse’s current or future income, how long he or she needs the income and so on.
• Fund final expenses— Losing a loved one is not cheap for the surviving family in many ways. Financially, they must bear the burden of high funeral costs.

At the least, life insurance allows a surviving family to “buy time.” It is a gift that affords them the time to mourn and deal with their loss as they create a “new normal.” This is especially important if there are children involved.