Money, Health, and Other Things

Educational Blog in the Area of Family and Consumer Sciences for the Middle Peninsula


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Risk Management and Insurance Basics, Part XI

This week, we’ll return and conclude our discussion on life insurance.

How do you determine how much insurance you need? While there are common simplistic formulas, like 10-times your salary, you may want to look at your individual financial situation to get a better idea.

Here are some questions to consider:

How much is your family dependent on your income? How much would they need annually to cover necessary expenses?

How long would it take them to adjust expenses? Some situations may allow for quick and significant reductions in household expenses, however, if you have multiple young children in a home where you’re paying off a mortgage, it may take a number of years before expenses can be significantly reduced.

What will your “final expenses” be? Funeral costs, as well as the accompanying food and lodging costs, can be expensive and should be included in your life insurance calculation.  

Which debts would you need your plan to pay off if you were to pass prematurely?


If you plan to have your children attend college as adults, how much would be needed for college expenses if you were to pass away?

Also, consider any other specific needs for your household – for instance, do you expect estate or inheritance taxes? Do you have a special needs dependent that may require medical and/or custodial care as an adult?

Once you’ve addressed some of these specific questions, you should have a better idea of how much you would need for life insurance.

In addition to avoiding simplistic formulas, here are some additional life insurance tips. Try not to cancel existing policies until you have a new one in hand. Be sure to periodically review beneficially designations – this should be done annually for all insurance policies and assets with beneficially designations; be sure the right people are supported if you were to pass away! Lastly, in the event of a divorce where the other person is the higher earner, consider making it a requirement for an ex-spouse to have life insurance to protect any alimony or child support.

Next week we’ll return and discuss disability insurance.