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Texas Insurance Blog

How Much Life Insurance Should I Carry?

It’s time. Maybe you just got married or had your first baby, but you know you can’t put it off any longer. You need life insurance. But how do you know how much life insurance you should carry? You don’t want to leave your loved ones struggling when it matters the most, but you also don’t want to be overinsured when you could be investing that money instead. 

David King Insurance Services LLC provides a wide variety of insurance types and coverage levels to our customers in Coppell, TX, and we can help you determine the right amount of life insurance for your lifestyle. 

How to Decide How Much Life Insurance to Buy

In the past, the general rule of thumb for life insurance has been to multiply your income times 10, since a decade is usually adequate time for your family to get on its feet and for your kids to reach the age of maturity. So, for example, if you make $70,000 a year, you’d want $700,000 of coverage.

However, while this formula is straightforward, it misses a lot of the nuance of individual family situations today. How many kids do you have? How many still need to go to college or trade school? Any kids from a previous marriage? Is one partner a stay-at-home spouse? 

Calculating the Correct Life Insurance Amount Today

A much better formula to use to determine the correct amount of life insurance is all obligations minus all assets:

  • Obligations. In this column, be sure to include all current, potential, and future obligations. At a minimum, you should add up your annual salary times the number of years you want to replace your income, your current mortgage balance, your minor children and their potential education costs, all other debts, and funeral costs. If there’s a stay-at-home spouse, be sure to account for the costs to replace childcare and other services in their life insurance calculations. 
  • Assets. In this column, subtract all of your liquid assets (aka not retirement!) including savings, bonds, college savings accounts, health savings accounts, and other life insurance policies, such as minimal policies provided by your employer, or children from a previous marriage who are also covered under an ex-spouse’s policy. 

Calculating your needs this way will automatically account for your unique situation and give you a good idea of your life insurance needs. Even better, this formula automatically updates as you grow your assets and decrease your financial obligations over time. 

Once you’ve taken the important step of protecting your family, we recommend that you revisit your life insurance needs every 5-10 years to make sure you’re still on target. If you live in Coppell, TX or surrounding communities and need help getting started, contact an insurance agent with David King Insurance Services LLC today! 

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