Every family financial plan should include some form of life insurance. This will ensure that your family will be able to continue financially in your absence. However, the question many people struggle with is how much coverage they need.

In the CBS Moneywatch article How Much Life Insurance Do You Need? reporter Stacey Bradford notes that most people underestimate this amount.

As a rule of thumb, the industry will tell you to purchase five to 10 times your annual income. This is a pretty good start but I actually found that I needed quite a bit more if I wanted my policy to cover both of my kids’ college educations.

Kiplinger magazine offers a slightly different formula for determining how much coverage you need. In their article of the same title, reporter Kimberly Lankford advises you consider four areas of your life: burial, mortgages and debts, college and income replacement. The first two are relatively simple – burials on average cost $10,000-$15,000 and your mortgage and debts can be tallied. For educational cost, Lankford says to simply use today’s dollars since college costs have been rising by about 5 percent a year — the same rate life-insurance proceeds should conservatively grow over time.

For the fourth area, Lankford suggests using 50 percent of your annual salary as the baseline and then dividing that by .05. So, if you earn $100,000, divide 50,000 by .05 – or $1 million. When you combine the totals of the four areas, you will know the amount of coverage you need.

Regardless of which formula you use, remember to discuss your needs with your insurance agent before deciding on a final amount. Your agent can also advise you on which life insurance product will work best for your situation.

We can help you. Feel free to contact us with any questions.