It’s no secret that life insurance plays an important role in helping to secure the future of those who may depend on you. The simple fact is that, after you die, your dependents will continue to require income. If you have an adequate amount of life insurance in place, that money can help to manage their ongoing expenses. However, different people have different needs. A broad rule of thumb is that you often need policy amounts equal to 10 to 15 times your annual income. Another way to determine your insurance needs is to add up current and future financial obligations and then subtract your savings, investments, and any projected earnings from your total need. 

Let’s take a look at a few different scenarios.

Scenario 1: Family

You are the primary earner and make $85,000 a year. You have two children, ages 6 and 8. Your spouse works part-time. You have a mortgage balance of $250,000. You’d like to make sure your family’s lifestyle can continue through college should something happen to you. You also need to take into account your future earnings. In this case, you might consider a $1.5 million, 20-year term policy.

Scenario 2: Single Mom

You have a great career and you are the sole support for your teenage kids, age 15 and 17. You make $120,000 a year and have been able to put a little money away for college. You have $78,000 in a 401(k). You also have life insurance policy through work that will pay one year’s salary as a benefit. You are renting your home and should something happen to you, your children will go live with your sister in another state. Since your kids are older, you want to make sure that their college tuition is covered and that there is enough to pay off your credit cards and other debts, to help with the move and to assist your sister while she is responsible for the kids before, during and just after college. Combined with your 401(k) and your group policy, a 10-year, $850,000 term policy may cover the bases. 

Scenario 3: Young and Single

You’re 28, healthy and have no dependents. You have college debt totaling $52,000 that you are on course to pay off in 8 years. Your parents co-signed for this loan, and they will be liable for the balance should something happen to you. You help out your younger brother with his rent. You have an entry-level job making $42,000 a year. Your retirement account and your savings total $16,000. A $200,000, 10-year term policy would be a great value. 

Scenario 4: Retired and Active

You and your spouse are enjoying retirement. Your home will be paid off in 3 years, with a payment of $750 a month. The equity in your home is nearly $450,000. Both of you are in your 60’s and are in reasonably good health. Your children are independent, but you often help out with “extras” such a paying for camp for your grandchildren, and you have a small college fund started for each. You have a liquid nest egg of $500,000. Between social security and your investments, your yearly income is around $55,000 a year after taxes. Should the primary earner pass away, that amount could be cut in half. A 20-year term, $1,000,000, policy would help the surviving spouse maintain his or her lifestyle, and provide money for the college funds.

These are just a few examples. To help determine your particular need, use the online calculator at the John Hancock Insurance website. You will be able to assess your family’s future needs, outstanding mortgage payments, other outstanding debt and any future expenses, such as education costs.