When it comes to figuring out how much life insurance you need, it’s important to determine how much you’re financially worth to your family. Otherwise, you’ll probably end up buying too much or too little coverage.
Many consumers use what’s called the “multiple of earnings” method to figure out how much life insurance coverage they need. With this method, you look at your annual salary and decide how many years your family would need to replace income if you died.
So, if you earn $75,000 and you want your family to be covered for five years, you would need $375,000 in life policy coverage.
However, many experts believe this method is ineffective. It doesn’t take wage increases into account and it can be difficult to determine how many years your family will need to be covered.
Plus, the technique does not measure your non-wage value. Non-wage contributions include essential duties such as cleaning the house or taking care of your children — tasks your family might have to pay someone to do if you were no longer living. Figuring Out How Much Life Insurance You Need