There is no formula to determine how much life insurance coverage is right for everyone. A quick and basic way to figure out how much you would need is to take your annual income and multiply it by 7. For example, a family with an income of N50,000 might need at least N350,000 worth of life insurance protection. But some insurance experts feel one may need as much as 10 times their annual salary.
There are more specific ways to estimate how much life insurance an individual or family may need. Figuring one’s need based on their income and assets can be more accurate:
Determining Expenses (-) Assets: Figure a rough estimate of your annual family budget. This would include your mortgage, child care, insurance, and basic living expenses. Don’t forget to include expenses such as vacations, and future education plans such as private school and college.
Next, estimate a figure for your assets such as savings, social security benefits, or any other income that will be there such as the income of a surviving spouse. Remember, stay-at-home spouses contribute a lot to the family income by by-passing child care, travel, cleaning, cooking, tutoring and associated costs, therefore would need to be insured also.
If your estimate is high, good; it’s probably right. If you are worried about the premium cost, I would recommend choosing term life insurance. You can get a policy for the time you would need it (the amount of time your kids would depend on you) for a lower premium than other insurance options.
