How Much Life Insurance Do You Really Need?


Well, Valentine’s Day is fast approaching, so I thought I’d tie in this post to the theme of love!  No, I’m not going to suggest that you purchase a life insurance policy as a Valentine’s gift! However, this is a good opportunity to think about WHO matters most in your life and how much you care for them!  Perhaps you will think about how much coverage you currently have, because life insurance is really about protecting the ones you love. If you were to die, would your loved ones face financial difficulty or do you feel confident they would be in good financial shape?

Some Things Clark Howard Says About Life Insurance         

As I wrote in my prior post, my early years in the business were heavily influenced by radio personality / consumer advocate, Clark Howard.  Clark helped me steer clear of some of the poor practices found in my business.  One of those practices was (and is) to sell a permanent life insurance policy (which generates higher commissions), rather than sell a low-cost term life insurance policy — especially when the client didn’t ask for permanent insurance.  For most people, it’s tough to provide adequate protection when purchasing a permanent policy because of the high premium.

Also in my prior post, I said I would address a few areas where I think “Clark Howard gets it wrong” regarding life insurance. Well, one area I’ll tackle concerns the amount of life insurance you need to buy. Clark will often say that, as a rule of thumb, people should buy ten times their income.  This “rule of thumb” will work for some people, but it is not a very good way to determine your need for life insurance.

Family A and Family B … with Very Different Needs

Consider Family A, where both spouses are well established in their careers, both earning over $80,000 per year.  Let’s say this family also has over $500,000 in retirement savings.  They adopt a 5-year old child and realize they need life insurance.  So, how much coverage do they buy?

Consider Family B, where one spouse works earning $60,000 per year and the other spouse stays at home taking care of their three young children. How much life insurance should they buy?

It would be silly to say that both families should buy ten times their income for each insured spouse. Obviously, these families have very different circumstances and needs.  So, the spouse that stays at home with no income shouldn’t purchase any life insurance?  I think not.  In the event of his/her death, the income producing spouse will probably want to spend more time at home and possibly hire a nanny.

I could show more cases where the need for life insurance should be substantially more or less than “10 times your income”.  That rule of thumb is an over-simplification and could lead to poor decision making.

I do not think you need to pay someone a lot of money to help you determine the need for life insurance. There are very good resources available that will help you. Here’s a great resource that provides an excellent life insurance needs calculator:

There are many factors to consider when deciding how much life insurance you need.  The calculator  referenced above will help you think through these things.  Do you want to make sure your kids will have their college education funded?  Do you have life insurance through your employer?  Is it portable? These are just some questions that can be helpful in determining the amount of coverage needed.

Also, an experienced agent can help you through this process and prompt you to think of things you might not have considered.  So, I’m sorry to say:  I’m your fan Clark Howard, but I think your “rule of thumb” for life insurance misses the mark!

In posts to follow, I will discuss a couple other areas where I think Clark Howard’s advice is too generalized and could lead to poor decisions.

For life insurance quotes, showing all the major carriers, please click here.

Peachtree Insurance Advisors     Greg Sanders     678-236-1600