HOW MUCH LIFE INSURANCE DO I NEED?

Overview of Life Insurance

The purpose of life insurance is to either create an estate or to protect an estate. It can provide a source of income in the event of your death, for your spouse, children or other dependents. It can also serve other purposes relating to estate planning such as paying for estate taxes or giving money to charity.

Life insurance often is the quickest and most substantial source of cash available to your family upon your death. The primary reason for buying life insurance is to prevent financial loss for dependents.

Life insurance needs and uses commonly include:

Financial security for surviving dependents upon the death of the insured person
Accumulation of tax-deferred funds for a specific major expense such as a child's education
Paying off a mortgage or other debt upon the insured's death
Liquid funds to pay estate taxes
To provide funds to pay the insured's final expenses such as funeral expenses
As a hedge against an otherwise aggressive investment or to establish a conservative investment.
To provide for special needs, such as a child that is handicapped or one that will never be self-supportive

Do You Need It?

Generally, you should consider the purchase of life insurance if any of the following apply to you:

You are married
You have children, particularly if they are dependent, and even more so if one requires special needs
Your parent(s) would not be able to manage financially or physically without you
You may need to supplement your retirement income
You expect to have a taxable estate
You are charitably inclined
You have a material ownership in a business

As a rule of thumb, it is often recommended you have life insurance totaling 5 to 10 times your annual compensation (depending on the estimated return you project).

However, everyone has a unique set of financial position, needs and objectives, and family situations. Consequently, a life insurance needs analysis (commonly referred to as a Capital Needs Analysis) is often recommended. This requires a review of objective criteria (e.g., your assets and liabilities), as well as subjective criteria (e.g., the amount of income you would like to provide for your surviving spouse and family.

Click here to go to the Capital Needs Analysis section of The Elan Group's web site where you will find a discussion of this process and a form to complete if you would like to have a custom-prepared analysis performed.

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