How much life insurance do I need?

Now that you've got a family you probably want to start thinking about life insurance. As you go through your married and family life and your finances become more intermingled and dependent on your partner as well as your dependents the need for life insurance becomes more prominent.

The amount of life insurance you need should be a financially based decision. Typically the question that needs answering is 'How much income do I need in order to maintain my family's standard of living should I die prematurely?'. The answer to that in many cases is a multiple of your annual income, since it's your annual income that currently maintains your standard of living, and financially speaking is lost upon your death.

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There are numbers of 'how much life insurance do I need' calculators available online that will calculate more precisely how much insurance you need. However for two income families without dependents, an estimate of 10 times your income is sometimes used. From this you would deduct any current life insurance you have including any group life insurance purchased through your work.

What type of life insurance do I need?

For young married couples with dependents, the urgency in purchasing life insurance is twofold. First, when first married couple's income and assets tend to be relatively small. This means that low cost is a priority. Secondly given the duration of that needs to be covered by the death benefit is long (long enough to ensure the children have completed
post-secondary education, should you die now), a large amount of insurance is often needed.

Term life insurance is often used in this situation as large face amounts can be purchased for relatively low cost. Term life insurance is 'temporary' life insurance however the word 'temporary' is a bit of a misnomer. The initial term or level premium period for term life insurance policies can be long – as long as 30 years. In addition, many policies can be converted to higher priced permanent insurance prior to the end of the initial term. At the end of the initial term period, most term life insurance policies renew at substantially higher prices, necessitating either a conversion to permanent life insurance or purchase of a new policy if medically feasible.

The single best way to get the least expensive coverage is to shop around. Prices for similar products vary widely from different companies. You can Shop life insurance rates online for American life insurance rates, or shop life insurance rates in Canada.