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How much life insurance should you have?

how much life insurance should you have

April 15, 2014. Agency Reporter

Like many people, you may be unsure as to how much life insurance you should carry. If you are underinsured, your family could face financial hardship in the event of your death. If you carry too much insurance, you may be wasting money on coverage you do not need.

By using a calculator such as the one found at the link in references, you will be able to determine the right amount of coverage needed for you and your family.

Final expenses

You first need to determine the amount of your final expenses at death. These will include the cost of a funeral, which can vary greatly depending on the type of casket or if cremation is selected. Other expenses such as transportation costs for out of town relatives attending the funeral can also be included. Allowances for federal estate taxes should also be made, which can range from 37 per cent to 55 per cent as of 2009. Consult a tax attorney or accountant for more information on estimating estate taxes.

One-time expenses

To relieve some of the financial burden on your family, you should also plan for one-time expenses. These can include paying off the mortgage, paying off outstanding debt such as car loans or credit card bills, and providing an education fund for your children, if applicable. You can also provide an emergency fund, which should range from three to six months of your income.

Living expenses

You will need to determine your family’s living expenses after your death. These would be diminished somewhat upon your death. Additionally, you will need to take into account your spouse’s projected income as well as any benefits received from Social Security. An estimate of Social Security benefits can be obtained at the link in Resources.

Income shortage

It will be necessary to calculate the number of years for which your family will need to make up the difference between your missing income and their living expenses. As a rule of thumb, you should figure on a minimum of three years if you were the primary breadwinner in your household.

Existing insurance

Take into account any existing life insurance that you have. This can include insurance coverage carried through your employer, or policies that you have in place to cover existing loans such as life insurance on your mortgage. You can also calculate the value of any assets that your family could sell to raise money in the event of your death.

Objectives of investment portfolio

To the uninitiated, an

investment portfolio’s objectives may seem obvious: to make money. But specific strategies exist within the overall objective of increasing wealth. Understanding these objectives – and how they change at different times in your life, can help you attain financial stability


Nearly all investment portfolios take actions today that will provide greater financial freedom in the future. That usually means save now, invest now and spend later. During our working lives, the primary objective is accumulation. Accumulation occurs in two ways: to have money to invest, we must set it aside — allocated from money we might spend; and once we invest, our capital appreciates when the market value of our investments increases. During the accumulation stage, the objective is generally to forgo investments that may produce income by dividends, in favor of investments most likely to appreciate in value, thus maximizing wealth accumulation.

Source :


Distribution — which usually begins upon retirement — is the point at which we begin to regularly withdraw and spend money in an investment portfolio. Consider inflation estimates and determine how much money you want and need at retirement. Based on the answer, you’ll create objectives to accumulate enough money, at a given return, over an allotted period to produce the desired income. Some portfolio objectives may try to preserve the portfolio’s principle and only spend portfolio-produced income. Others include plans to draw down the principle. In either case, objectives usually invoke a change from chosen investments — because they are likely to appreciate in value — to investments that produce income by dividends or bond payments.

Tax planning

Different investments have varied tax treatments. For example, municipal bonds are treated differently than corporate bonds. There are several major tax considerations in investment portfolios; three of them deal with timing and whether you pay taxes on income before you invest it, pay taxes on income from the sale of the investment, or both. Deferring taxes until later allows you to accumulate more money faster. Paying taxes first, however, allows you to reap the investments’ returns without paying taxes later. Some investments are tax exempt, though the trade-off for tax exemption is usually a low yield.

A sometimes-overlooked objective is simply not losing your money. Markets ebb and flow. We cannot predict them accurately, but we know they operate cyclically. Planning for recessions or other market anomalies is ideal. Think of it as a “fallback” or defensive position in which your primary goal is not losing your principle. A fallback position may involve selling securities and moving to investments considered safer, like treasury bills.

Category: Insurance

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