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Question:


How much life insurance does a person generally need?
-AprilMaple


Answer:


There is no easy way to answer that, as there is nothing like a general person. Everyone’s circumstances are different. If you have a financial planner, this is a question you will want to ask him or her if you haven’t done so already. How much you need depends on how many children you have and their ages; what sort of assets you have, including a home; what sort of debts you have, including a mortgage; whether you have others to support, such as aging parents; the health of everyone in the family and other factors. All that said, there are two rules of thumb, each of which is likely to produce a similar figure for many families. One is that you should have insurance worth seven times your annual income; the other puts the amount at 10 times annual expenses.

One way to get more bang for your insurance buck is to buy a term policy, which provides coverage for a set number of years. Because the policy is not open ended and will remain in force during years in which the holder is younger and less likely to die, each dollar of coverage is cheaper than with a whole-life policy, which remains active until the bitter end, assuming premium payments are maintained. If you want to make sure your kids will be looked after if the worst happens, consider a term policy that will last until the youngest is 21 or whatever age you expect the child to be self-sufficient. After that, get a policy with a lower value, perhaps a bit more than the amount of your outstanding mortgage and any other debt you may have.

-Conrad de Aenlle



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