How Do I Determine the Amount of Insurance Coverage I Need?


When meeting with a new client the first time, often the first question I hear is "how much life insurance do I need?" While that is a key question it usually can't be answered until certain information is known. A common guideline in the industry is 8 to 10 times your annual income. OK, let's say your annual income is $50,000, so your coverage should be $400,000 to $500,000. OK that makes sense but what if you are a stay at home mom with no income? Does that mean mom doesn't need insurance? On the contrary, we know moms are the most under paid people out there because of everything she does for our family and we would be totally lost without her. Yes mom needs to be insured for sure, so forget the 8 to 10 times rule and read on. The only way I believe you can determine how much insurance you need is to share certain information with your insurance agent.
If you don't know the name of an agent, ask your friends and business associates who they use and trust. Once you have a name, give the agent a call and if you're comfortable with the person, set up a meeting. Be sure to ask what information the agent will need for the meeting and make it as accurate as possible.
A common question at this time is do I use an independent agent or a captured (company) agent. An independent agent will have access to many different insurance companies while a captured agent will have only the products their company offers. I feel both have distinct pros and cons so I won't make a recommendation.
So back to our question, how much life insurance do I need? To determine that, you should be prepared to share at least the following information with the agent and it is what I request for my first meeting. By the way there are many types of insurance available and I plan to cover them in later articles as well as what to expect once you say "where do I sign".
o Birth dates are needed (obvious). o What income is lost if the insured passes away. o What other income is expected to be available at that time (savings, other wage earner, etc). o Will there be other existing insurance policies or are you replacing an old policy? (Be sure it is in your best interest to replace the old policy and wait until you are accepted by the new company before you cancel the old policy). o What is the health of the person(s) being insured including height and weight? o Provide medical history such as previous doctor visits and major medical events such as surgery, major illness etc. o List of medicines taken. o Include any other information pertaining to your health. o Are you a non-smoker? If so how long have you been a non-smoker? o If you are a smoker what do you use and how often? o What major debts are expected the next few years such as college expense? o What children that will be affected (ages, health, special needs) and still requiring your support. o Who will be the beneficiaries; family, grandchildren or charitable organizations. o Any other information that you may think pertinent. o Is this and individual policy or company policy (whole new set of rules).
This will help your agent determine an accurate financial, and health profile so proper coverage can be determined within your budget.
At times I hear the statement "I'm insurance poor" but if the meeting between the agent and you is open and accurate, the agent can accurately provide you what you need. From my own family experience to be under insured is worse than too much insurance or "insurance poor". Would you agree, the worst time to find out you or your family were under insured is when the event occurs that caused the insurance to be needed.
After the insurance is purchased, it is very important to meet with your agent at least annually to review your policy. The only thing guaranteed in life is change, so make sure your agent is kept informed of events such as births, a bigger house, a smaller house, mortgage paid up, divorce, change of beneficiaries, etc. You get the idea.