Is 10 Times Your Salary the Right Amount of Life Insurance?

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  • If you're going to buy life insurance, it should give your loved ones the financial security they deserve.
  • Though securing covering worth 10 times your salary could make sense, you may want to opt for a different level of coverage.

It may be -- but it depends on your goals.

Buying a life insurance policy is one of the most important financial steps you can take to protect your loved ones. But it's not enough to simply purchase life insurance -- you also need to make sure you're procuring the right amount of coverage.

When you buy life insurance, you can effectively choose what sort of death benefit your policy will pay out. And as you might imagine, the higher that benefit is, the higher your premium costs are apt to be.

For this reason, you don't want to go overboard on coverage, because that could leave you with expensive premiums you struggle to keep up with -- to the point where you risk having your coverage lapse. On the other hand, you don't want to be underinsured, either, because that could leave your loved ones in the lurch.

Now you'll often hear that as a general rule, it's a good idea to secure life insurance that will replace 10 times your salary. So, if you earn $100,000 a year, you may decide to buy a $1 million policy. But while that's a good framework to start with, it may not be the right number for you.

Why you might need more coverage

Replacing your salary 10 times over could make it possible for your loved ones to stay afloat for many years in your absence. But what if you have other goals?

Say your plan is to save enough money to put your children through college. If you're not around to keep working and saving, your children may be limited in how much they can pay for higher education. If that's not something you want, then you may want to secure more life insurance so that your beneficiaries will have money to cover their living costs and education.

Why you might need less coverage

For some people, replacing their income times 10 won't cut it. But what if you're in the opposite boat? Let's imagine you're in your 30s and are looking at a 30-year term life insurance policy to protect your spouse and children.

It may be that your spouse has a great job and a generous life insurance policy of their own. It may also be that your spouse has wealthy parents who have set up large trust funds for your children to pay for things like education. In that case, you may decide to opt for less coverage and save the money.

Run your own numbers

Many people who apply for life insurance ultimately settle on a benefit worth 10 times their salary because that's what they're advised to do. There's nothing wrong with going this route, and clearly, it works for a lot of people.

But before you settle on that figure, run your own numbers and map out your own goals. And, if your beneficiaries are old enough, have those conversations with them to see what sort of coverage they might be looking for. All of these things might ultimately lead to the right decision -- and more peace of mind for you.

Our picks for best life insurance companies

Life insurance is essential if you have people depending on you. We’ve combed through the options and developed a best-in-class list for life insurance coverage. This guide will help you find the best life insurance companies and the right type of policy for your needs. Read our free review today.

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