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How Much Life Insurance Do You Need?
Life insurance. It's something most people realize they need, but how do you know if you have enough?
According to the LIFE® Foundation, there are two questions you should ask yourself:
- How much money will my family need after my death to meet immediate expenses, like funeral expenses and debts?
- How much money will my family need to maintain their standard of living in the long run?
For Representative Minnie Gutierrez, addressing these questions is just one step in her process of helping clients apply for the right amount of coverage. "I do a needs analysis, ask the tough questions and present them with options," she said. "It's my mission to educate them and let them know I'm going to be part of their life. I tell them we can always add to or change their coverage down the road."
"Down the road" isn't as far off as most people generally think. In as little as a year, changes can happen that require you to review your life insurance needs. Some of these events may include:
- Marriage (or divorce).
- A new baby.
- A new home.
- A new job or business.
- A death in the family.
Elizabeth and Merced Alfaro knew they needed life insurance, but they weren't sure how much. "At first, we only had insurance on me because that's what we could afford at the time," Elizabeth said. "But then we added Merced because he's the main breadwinner for our family and we realized we had to be prepared if something should happen to him."
Growing up, Elizabeth saw firsthand the hardships families could face without enough life insurance. "I was raised by my grandparents and I saw a lot of people who were not prepared when they had a death in the family," she said. "They didn't have enough money, so they had to borrow additional money for expenses."
Gutierrez helped the Alfaros determine how much coverage they would need to take care of their family. "When I first started talking to them about having enough protection, Merced thought he only needed enough money to bury himself," Gutierrez said. "I reminded him that life insurance is meant to be an income replacement stream, not just for burial expenses. It's a way to provide for your family even after you're gone." (See the sidebar for additional information.)
So Gutierrez set the Alfaros up with a Family Term certificate, and let them know they could always convert it to permanent insurance in the future. And as their three daughters – Lily, Leah and Melody – continue to grow and start to make lives of their own, the Alfaros are now thinking about additional coverage to help protect their family's future even more.
There's no right or wrong answer
For Gutierrez, addressing her clients' ever-changing needs is part of being a successful Representative. "I run into people all the time who are underinsured," she said. "I show them that if they put money into this now, they'll be able to protect their family down the road. How awesome would it be knowing that if you should die tomorrow, your family will be taken care of?"
According to Gutierrez, there's no right or wrong answer to how much life insurance you need. "I recommend 10 times their income, but many people may not be able to do that right away," she said. "So, we set it as a goal to work toward."
Ultimately, personal values, goals and affordability can help determine what is right for you and your family. Whatever you decide, your loved ones will appreciate it in the unfortunate event that it is needed.
"We never want to leave a burden for our kids, but I know having life insurance is like having cable to some people – they don't see it as a necessity," Elizabeth said. "But for us, we've always believed in life insurance and we want to make sure it will be enough. It's just what you do when you have a family."
How Much is Enough?
The most important part of buying life insurance is determining how much you need. Since everyone's financial circumstances and goals are different, there is no single answer to that question.
Half of America's households claim to be underinsured when it comes to life insurance.1 Therefore, they may not have enough insurance to cover all the things life insurance may need to protect, which can include:
- Funeral expenses.
- Ongoing bills, including mortgage payments.
- Education expenses for family members.
A first step in countering many of the life insurance myths you may have heard, and determining how much coverage you need, could include a visit to an online life insurance needs calculator like the one on woodmen.org. Click Learning & Tools, then Learning Center, then select Life Insurance Needs under the heading Calculators.
However, remember that online calculators are no substitute for the advice a Woodmen of the World Representative can provide. He or she can conduct a thorough analysis of your needs, and help you determine the right amount and type of life insurance to protect the ones you love.
1. LIMRA International, "Trillion Dollar Baby Growing Up," 2011.