One of the most overlooked parts when analyzing the need for life insurance is income protection. Most often when reviewing your needs for life insurance, families focus on having enough to pay off their debts and making sure their kids can go to college.
Whether you’re the sole provider for your family or you and your spouse share household expenses, it’s important to ensure that if something happens to you, the surviving spouse and family members will have money for bills and expenses but also have enough money to keep a similar lifestyle.
Life insurance provides fast, tax free income to your family.
Your employer may provide 1-3 times your income, which is a nice start, but it’s not nearly enough to support your family. Aside from being underinsured, you also run risks relating to the fact that your employer owns your life insurance policy.
The simplified guideline for income replacement life insurance is 5-10 times your gross annual salary worth of life insurance, although everyone has their own unique situation.
The cumulative amount of insurance you’re allowed to buy is generally based on a multiplier of your current age and gross income, aligning with approximately how many years you have until retirement:
- 20s and 30s: 30x your gross income
- 40s and 50s: 15-20x your gross income
- 60s and 70s: 5-10x your gross income
For a more in depth look at determining income replacement needs please contact us.