How Much Life Insurance Do You Need?

Determining how much insurance you really need can be perplexing. What company provides the best and most competitive policies? Can you find a premium that comfortably fits your budget? How much coverage do you actually need? Thinking about all this information is enough to make your head spin.

Experts have created guidelines for deciding the amount of life insurance you need. Some experts recommend using formulas they developed to help choose the ideal coverage amount. One formula suggests a coverage amount that is 10 times your income, with an additional one-hundred thousand dollars per child for college expenses. Others recommend a complicated process of counting up debts, calculating how many years your family would be replacing your income with the payout from your insurance policy, combining college savings for each child, and finally subtracting liquid assets.

Confused yet? After adding in all the expert recommendations, your insurance coverage can easily become a multi-million dollar policies. Will you qualify for the policy, and if you do could you afford it? Luckily, determining the amount you need for another type of life insurance called final expense insurance is a much simpler process.

Final expense insurance is meant to cover your end-of-life expenses. While these costs typically refer to funeral and medical bills, they can also provide a small inheritance to your surviving beneficiaries. These policies usually provide the flexibility for the beneficiary to use the payout however they see fit.

Final expense insurance is a type of whole life insurance, meaning that it doesn’t have an expiration date. This type of insurance usually has a simple underwriting process, requiring only a few questions and no physical exam when applying. Because of the simple application process, final expense insurance has become very popular with seniors.

Most policies can provide coverage from $5,000-$50,000, but the amount specific to your needs can vary greatly depending on many factors. Before choosing a coverage amount, it’s important to consider the personal debts you want to cover with your policy, your funeral costs, and your beneficiary’s needs.

Personal Debts

If you think that your beneficiary may also be responsible for your personal debts after you pass, you should consider increasing the amount of coverage to help pay for those costs. You can estimate how much more you will need in your policy for personal debts by adding up your current debts and then subtracting the sum of your assets. Although your family won’t be responsible for your pre-death debts, they will only receive the part of your estate that is left after your debts are repaid.

Funeral Costs

According to the National Funeral Directors Association (NFDA), the average cost of a traditional funeral with a viewing and a burial is $6,940.00. In addition to these costs, you’ll have to add in a “non-declinable basic service” fee that all funeral service providers charge. This additional fee is used to cover administrative costs, licensing, and transportation of the deceased. On average, this fee costs $2,195 according to the NFDA. This brings the total to $9,135.00. With this cost in mind, the minimum coverage your policy provides should be no lower than $10,000.

For a more detailed breakdown of the costs associated with funerals, please see our page titled “Average Burial Expenses”.

Your Beneficiary’s Needs

A final expense insurance policy provides a great option to leave an inheritance to your beneficiary. To do so, it’s important to choose a coverage amount high enough to cover not only funeral/burial costs and personal debts, but with enough of a cushion that there is a sufficient amount left over to leave to your beneficiaries.

Adequately preparing for end-of-life costs can help to provide you and your family peace of mind, so you can all enjoy life while you're still here. Choosing a coverage amount doesn’t have to be a difficult process. For more help finding an insurance agency that you can trust, please fill out this simple online form and one of our highly-trained staff here at SAO will reach out to answer all your final expense insurance questions.