April 12th, 2010
06:04 PM ET

If you're going to buy life insurance, make sure you've got enough

CNN Money

How much coverage do you need?

There is no simple answer to how much coverage is enough.

Some financial planners say you need enough insurance to replace five to seven years of your salary. If you have young children or significant debt, you should bump up your coverage so you have enough to replace as much as 10 years of your salary, they say. That would mean a person making $50,000 a year should have anywhere from $250,000 to $500,000 worth of coverage or more.

Remember, the sole purpose of life insurance is to replace your income in case you die, so that your dependents can maintain their current lifestyle.

Factors to consider include whether the surviving partner will have child care expenses if one partner is out of the picture. Do you have other assets on which to draw? Will your children be out of the nest soon? These, and many other factors, influence the decision on how much coverage you need.

Buying a whole-life policy doesn't necessarily mean you are fully insured. Because of the investment component of whole life, the policies are much more expensive than term. Don't simply buy less coverage, as it defeats the purpose of buying insurance in the first place: to cover dependents.

Next, you've got to figure out how long you need the policy.

Filed under: 360° Radar • Insurance
soundoff (5 Responses)
  1. laura

    Finally, the kind of information that we Americans need to help put our lives in order, and increase our personal security. Too many neglect these things then society as a whole suffer. CNN, get us more of this type of info, in fact do a segment a day for a week or two, so that we can "check" our own business against what should (already) be done. Make sure you include a segment on wills, living trusts ect. And another on living wills. Then show Americans how to put all their "important documents" into 2 "easily grabbed" binders (with one going into a bank safety deposit box) and the other in a special place at home, or a trusted relatives home, so that in case of need they are quickly available. Please help remind us of how IMPORTANT these "basics of real life" are!

    April 13, 2010 at 8:19 am |
  2. joymunro

    This is always a debate. Having sold whole life and term for 26 years I can say buy what you can afford and make it permanent since when you buy only term it expires when your family needs it most.

    Although one can debate you'll have assets when your old...well then you have a year like 2008 and your assets are much less or not at all! It is impossible to generalize this one. Health issues are a big concern in approving for any policy remember!

    I see many people shopping for life insurance in their 60's why?
    There term coverage ran out! Buy whole life and buy young that will make it alot cheaper. Use term insurance only to supplement in heavy liability years.

    April 13, 2010 at 6:54 am |
  3. Steve

    On the other hand, if you're single and have no dependents, and your house is paid off, then really, the only life insurance you need is enough to cover the cost of dealing with your remains.

    April 13, 2010 at 12:45 am |
  4. Debbie

    Not to worry...soon the government will be picking up the tab for the under life insured. 🙂

    April 12, 2010 at 10:48 pm |
  5. Annie Kate

    My last child will leave the nest in another 18 months. After that I'm not sure I'll even carry any life insurance. I've been the main breadwinner for all of the years of my marriage while my spouse drifted from job to job and didn't worry about earning the money he spent. Once I'm dead and gone is free ride is over and he'll have to figure it out for himself.

    April 12, 2010 at 9:28 pm |