Term life insurance was designed to meet the specific needs of an individual at a certain time and place in his life. The goal of term life insurance is to make sure that, in the event of your sudden death, those who are depending on your income are not left in a financial lurch.

How Do I Determine the Amount?

While there’s no sure-fire way to be sure you are purchasing the exact perfect dollar amount, you can get pretty close. Start by asking yourself the following questions:

  • Do you own a home? If so, what is the amount still owed on the mortgage?
  • Does your spouse work? If not, what amount will he/she need to survive while looking for a job or support system?
  • Do you have children? If so, consider the cost of childcare expenses your spouse may incur while working or caring for the home. Also estimate the amount that education may cost for each child – primary education if you choose private schools and your child’s secondary college education.
  • Do you have a monthly budget? If so, how much do you spend each month on general expenses? Use an income generator or your bank statements to determine your monthly spending and consider how long the total amount you are purchasing would last if spent; or even if invested and your family only used the interest.
  • What tasks do you perform that your spouse can’t, or vice versa? This is an important question. If you work and your spouse is a stay-at-home parent, what would you do if your spouse passed away? You’d have to pay for childcare. Perhaps you are the only one who can perform landscaping and household maintenance tasks, so your spouse would have to hire outside help. Consider these as additions to your budget.

If in doubt, talk to your insurance agent or your financial planner for help determining what amount of term life insurance you need. They’ll have formulas available to help you make the most accurate decision.

Don’t forget – the amount of term life insurance you need may change over time. Perhaps your children have grown and gone off to college. Maybe your mortgage is paid off. You can always adjust the amount of your policy, or even switch over to a whole life policy, later on as your needs change and you approach different phases of your life.