How much life insurance should I buy?

By Jacques Wong | Last updated: May 29, 2017

This is a very tough question that gets asked all the time. The answer depends largely upon two factors: whether you a primary provider for dependents and whether you have any debts. If both of these apply to you, you might need life insurance to make sure your dependents are taken care of should anything happen to you (if you don't have coverage yet, find out what is The Perfect Age to Get Life Insurance).

Now, let's get to the numbers. To choose an adequate face value for your life insurance policy, you will need to look at two figures:

  1. Debt: If you have large debts, you will probably want to make sure that they are fully paid off by your life insurance policy when you pass away. Otherwise, your dependents may be burdened by your outstanding loans.
  2. Income: This is one of the biggest factors to look at when trying to determine how much life insurance you should buy. To make sure your dependents are provided for, you should plan on buying enough life insurance to replace your income given a 5-8% return on investment—plus a little bit on top to guard against inflation.

Let's say, for the sake of example, that you owe $100,000 in mortgage debt and that your dependents would need $400,000 to replace your income. So, just add those 2 numbers and you'll have a guideline for how much life insurance you should be buying. In this case, $500,000.

Of course, price and affordability also come into play here, since a larger life insurance policy would obviously require you to pay a higher premium (find out What Influence Life Insurance Premiums).

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Written by Jacques Wong

Profile Picture of Jacques Wong

Jacques grew up around the insurance industry and began actively participating in 2013. Since then, he has gotten a Level 2 license, won Insurance Council of BC awards in 2015 and 2020 for academic excellence in the insurance licensing courses. He educates insurance professionals through PNC Learning and as a Thought Leader at ReFrame Insurance.

In his day job as an insurance broker, he helps businesses with creative risk management solutions and strategic advice when it comes to insurance.

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