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To determine how much life insurance you need, the main goal is to replace your income for your family over a certain number of years, so they can maintain their current lifestyle if you were to pass away.
A common approach is to multiply your annual gross income by 10 to 15 times. For example, if you earn $100,000 per year, you would typically look at coverage between $1,000,000 and $1,500,000. The lower end (10 times) is more suitable if you’re a bit older, and the higher end (15 times) is better if you’re younger and have more years until retirement or until your children are financially independent.
You can also refine this estimate by considering:
The percentage of your income your family would actually need (for example, 60% to 80% of your gross income).
The number of years you want to provide that income (such as until your children are independent or until your planned retirement age).
If you have life insurance through your employer, you can subtract that amount from your total need. For example, if you need $1,000,000 in coverage and already have $300,000 through work, you would look to purchase an additional $700,000 individually.
Let me know your annual income and any existing coverage, and I can help you calculate a more specific recommendation.
Employer-provided life insurance is a helpful benefit, but for most people—especially those who are income earners with families—it usually isn’t enough to fully protect your loved ones. There are a few important reasons for this:
The coverage amount is often limited and may not be enough to replace your income for as many years as your family might need.
Group life insurance at work isn’t guaranteed to stay in place. Your employer could change or stop offering the benefit, or the insurance company could raise premiums.
The coverage typically only lasts as long as you’re employed with that company, so if you change jobs or lose your job, you could lose your coverage.
While it’s a good idea to keep your employer-provided life insurance, it’s wise to consider an individual policy to make sure your family is fully protected. You can subtract your workplace coverage from your total insurance need to avoid over-insuring, but relying on it alone is usually not recommended for comprehensive protection.
And interestingly, that’s a two part question which the dev said just came online this morning. So, good test - I’m not sure if it answered it as a two part question or not though lol.
Thank you for sharing your income and current coverage details. Based on your $50,000 annual income, a common guideline is to aim for life insurance coverage between $500,000 and $750,000 (which is 10 to 15 times your annual income).
Since you already have $100,000 of coverage through your employer, you can subtract that amount from your total need. This means you would typically look to purchase an additional $400,000 to $650,000 in individual coverage, depending on your preferences and how many years you want to provide for your loved ones.
If you’d like a more tailored recommendation, let me know if you have any dependents or specific financial goals you want your life insurance to cover.
So looks like the ‘chaining’ of questions is now working.
Why should I bother buying life insurance? I’ll be dead before I get to use it.
real question - What’s the difference between pre-need and final expense? I hear those terms throw around but I don’t really understand what’s going on.
real question - Don’t life insurance companies have lots and lots of money? Why does life insurance cost so much if they make so much profit?
real question - There are people who say “don’t buy whole life insurance. Buy term and invest the difference.” What do they mean? And who should I listen to?
That’s a great question, and it’s a common one. The main purpose of life insurance is to provide financial security for your loved ones in the event of your premature death. While it’s true that you personally won’t use the benefit, life insurance ensures that your beneficiaries—such as your family or estate—receive a death benefit that can help cover expenses, pay off debts like a mortgage, or provide financial stability.
Think of it as a way to replace the financial support you would have provided if you were still alive. It’s not about insuring the value of your life itself, but rather protecting against the financial loss your passing could cause. This can give you peace of mind knowing that your loved ones will be taken care of financially, even if you’re not there to support them.
That’s an excellent question. The main difference between pre-need and final expense insurance comes down to flexibility and control.
Pre-need plans are typically prepaid funeral contracts arranged directly with a funeral home. You pay in advance for specific funeral services and products. While this can lock in today’s prices, your money is tied to that particular funeral home, and if your wishes or circumstances change, it can be complicated to make adjustments. Prepaid contracts can also be complex, sometimes requiring legal advice to fully understand the terms.
Final expense insurance, on the other hand, is a type of life insurance designed to cover end-of-life costs, such as funeral expenses, outstanding bills, or other final obligations. The benefit is paid directly to your beneficiaries as a tax-free lump sum, giving them the flexibility to use the funds as needed—not just for funeral costs, but for any expenses that arise. Your loved ones aren’t restricted to a specific funeral home or plan, and the application process is simple, with no medical exams required.
In summary, final expense insurance offers more flexibility and control for your loved ones, while pre-need plans are more restrictive and tied to a specific provider.
That’s a thoughtful question, and it’s a common misconception. While life insurance companies do manage large sums of money, the way they handle premiums is different from most other businesses.
When you pay your life insurance premium—especially for permanent policies—you’re often paying more than the actual cost of insurance in the early years. This “overpayment” isn’t profit for the company. Instead, insurance companies set aside this extra money inside your policy in a process called reserving. These reserves are saved and used later to offset the much higher insurance costs that come as you age. So, in the early years, you pay more now to pay less later.
If you cancel your policy, the company may refund a portion of those reserves, since they no longer need them to cover your future costs. This system ensures that the company can always meet its obligations to pay out claims, even as the true cost of insuring you increases over time.
So, while insurance companies do manage significant funds, much of that money is held in reserve to guarantee they can pay future claims. The premiums you pay are carefully calculated to balance these long-term commitments, not simply to generate profit.