Anyone with dependents relying on their income knows the question isn’t whether to own life insurance, but how much to buy? The challenge is finding the balance between your long-term financial requirements and the need to control costs.
An equally important consideration is that while an insurance policy’s face amount may look significant, it’s often deceptive. While considering the amount of insurance to purchase, ask yourself whether the amount your family receives will cover 30+ years of living expenses, mortgage, college, etc.
We offer these tips for determining an appropriate level of financial protection for your family.


Accurately Measuring Need

Financial professionals can help assess your long-term insurance coverage needs by examining these three issues:


1. Covering Living Expenses

Do you know how much money your family requires to meet basic living costs over time if something unexpected happens to you? Your passing will naturally eliminate certain household expenses, but other costs may go up if someone is hired to do tasks you previously managed.

You can easily estimate your family’s living expenses. Determine your average monthly living costs, multiply by 12 months for an annual cost of living, and multiply THAT figure by 25 years for your primary life insurance need.

This simple strategy is a good place to begin and provides a 4% draw down of the lump sum total to meet annual expenses.


2. Paying Debts

An insurance settlement should comfortably pay off a mortgage, car loans, student loans, and credit card debts. Our approach ensures your survivors aren’t burdened with significant daily expenses despite the loss of an important income earner.


3. Meeting Savings Goals

Include saving for college or retirement when estimating life insurance coverage. Fulfilling surviving family members’ financial necessities or desires becomes challenging once you’re gone. That settlement check may be the last chance to turn their dreams into reality.

Determine Your Objective


Each situation is different, and your insurance coverage needs will probably vary from those of friends, family, and neighbors.

Consider that insurance should cover your family’s basic debts, but not be your fiscal legacy. Your assessment should result in buying the right amount of coverage, rather than an unrealistic policy just to generate a sales commission.

In addition, as you strategize your family’s long-term fiscal needs consider how much money your surviving spouse would earn when left alone and adjust your projections accordingly. Furthermore, your family’s income needs may decline over time, assuming sufficient retirement funding has been put into place.

Finally, explore whether you prefer having term insurance (low cost for a limited time) or a permanent policy in place.

Next Steps

An informed estimate of your family’s economic goals is crucial to providing the right amount of coverage in case something happens to you. Determining your actual family needs is never an easy exercise, and your decision-making process will probably benefit from professional advice.

Lastly, plan to re-evaluate your life insurance needs every five years, as well as at major life milestones like a marriage or having a child, to ensure your coverage is accurate.


With over 15 years of providing comprehensive fee-based financial, investment, retirement and estate planning, Richard Fogg and his team know clients appreciate and value their unique approach, experienced advice and the outstanding level of personal service they receive. Based in Carmel Valley, the Fogg team is appreciated by clients for bringing experience and integrity to help them achieve their hopes, dreams and aspirations. Fogg & Associates is an Ameriprise Platinum Financial Services® practice of Ameriprise Financial Services, Inc.