How Much Life Insurance Do I Need?
- Frank B. Simpson Jr.
- 2 days ago
- 4 min read
Answer these three questions to protect the people you love.
Life insurance isn’t just a policy—it’s a plan to replace your lifetime income, retire debts, and fund key goals if you’re not here. To get this right, start with three questions:
1) Do You Have Life Insurance?
If someone depends on your income (spouse/partner, kids, aging parents, business partners), you need coverage. Life insurance exists to replace income, pay final expenses, and handle debts so survivors aren’t forced to liquidate assets or change life plans overnight. The Insurance Information Institute (Triple‑I) highlights income replacement, debt payoff, and final expenses as core reasons families carry coverage.
Coaching Takeaway: If anyone relies on your paycheck, coverage isn’t optional—it’s a responsibility.
2) How Much Life Insurance Is Enough?
Think in layers:
Income replacement to retirement age: A common starting point is 10–12× your annual income, then adjust for your actual obligations (mortgage, college, business needs) and existing assets.
Debts: Include mortgage balances, private student loans, car notes, and business loans.
Final expenses: Funeral costs vary; the national median for a funeral with viewing and burial was $8,300 (2023 NFDA); cemetery costs can push totals higher.
Family costs: Childcare, tuition, health insurance premiums, and the lifestyle gap your income currently fills.
Many planners also use the DIME method (Debt, Income, Mortgage, Education) or income‑replacement calculators to anchor a number.
Coaching Takeaway: Start with 10–12× income, then tailor up or down for debts, final expenses, and family goals.
3) Is Your Policy Up‑to‑Date?
Your life changes—your coverage should too. Review annually and after major events: marriage/divorce, having children, buying a home, starting a business, health changes, or a partner leaving the workforce. Large carriers and consumer guides recommend annual reviews and updates to beneficiaries and coverage amounts when life events occur.
Coaching Takeaway: Put a 30‑minute “policy check‑up” on your calendar every year—or after any big life change.
Term vs. Permanent Insurance
Term life
Pure protection for 1–30 years; no cash value; lowest cost per dollar of death benefit. Great for income replacement during prime earning years and to cover large debts (e.g., mortgage).
Permanent life (coverage for life + potential cash value)
Whole life: Fixed premiums, guaranteed death benefit, potential dividends (especially with mutual insurers), and cash value accumulation.
Universal life (UL): Flexible premiums and death benefit; cash value credited at interest rates set by the insurer.
Indexed universal life (IUL): UL with interest credited based on an index (e.g., S&P 500) with caps/floors—potential upside with downside limits; more complex, fees vary.
Variable life / Variable UL: Cash value invested in sub‑accounts (stocks/bonds); greater growth potential with market risk.
Coaching Takeaway: Match your policy to your goal: term for affordable income replacement; permanent for lifelong coverage plus cash value.
Pricing: Why Buying Younger Costs Less and Why You Need a Policy Outside Work
Premiums are based heavily on age and health—younger buyers lock in much lower rates and may qualify for preferred underwriting classes. Also, don’t rely solely on your employer: workplace group life is usually limited and often ends or changes when you leave or retire.
Coaching Takeaway: Start early and own an individual policy—jobs change, your coverage shouldn’t.
Health Concerns? You Still Have Options
Current health issues don’t automatically disqualify you. Underwriting can consider controlled conditions; simplified or guaranteed‑issue options may exist—expect different pricing and waiting periods. NAIC consumer guidance stresses evaluating needs and comparing policies even when health changes.
Coaching Takeaway: Don’t self‑reject—talk to a licensed life insurance professional about underwriting paths.
Life Insurance as a Living Asset and a Long‑Term Income Multiplier
Permanent policies can accumulate cash value—usable via policy loans/withdrawals—while term policies maximize cost‑efficient death benefit. Properly structured coverage functions as a long‑term income multiplier for your family: it converts premium dollars into a guaranteed promise to replace years of earnings if you’re gone, and—when permanent—can provide living benefits during your lifetime.
Coaching Takeaway: Think of insurance as both protection today and a strategic asset for tomorrow.
Who’s Behind Your Policy? Mutual vs. Stock Insurers
Mutual insurers are owned by policyholders; profits may be shared via participating dividends or used to strengthen surplus.
Stock insurers are owned by shareholders; profits primarily benefit investors; policyholders are customers, not owners.
Neither is “better” in all cases—evaluate financial strength ratings, dividend history (for participating policies), and product fit.
Coaching Takeaway: Ownership structure influences dividends and long‑term philosophy; choose the platform that supports your goals.
Annual Review Checklist
Beneficiaries current?
Coverage amount aligned with current income, debts, and goals?
Policy type still appropriate?
Any new riders needed (child, disability waiver, chronic illness)?
Integration with estate plan and business agreements?
Major carriers and consumer resources recommend annual reviews—especially after life events—to keep protection aligned.
Coaching Takeaway: Annual reviews protect against drift—your life evolves, so should your coverage.
Next Step
Ready to calculate the right coverage and secure underwriting options? Book a complimentary Life Insurance Strategy Session using the button below to:
Calculate income replacement to retirement age
Audit debts/final expenses
Compare term vs. permanent solutions (including IUL, UL, and whole life)
Coordinate with investments, taxes, estate planning, and savings
Clarity creates confidence—and confidence creates results.
Important Note
This article does not constitute financial advice. You should work with a trusted, licensed financial advisor to support you in life insurance, investments, taxes, estate planning, and savings decisions. Use the contact buttons below to speak with an Advisor from The Simpson Firm.
Written by Frank Simpson | Senior Private Wealth Advisor
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