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Q&A: How much life insurance is right for you?

Coverage levels that work for you may not work for someone else. Here’s what to consider when setting life insurance coverage levels.

Woman discussing life insurance with couple

Life insurance isn’t one-size-fits-all. For example, one common rule of thumb says the amount of life insurance coverage you need should equal 10 to 12 times your income. Another suggests using a formula that takes into account paying off debt and replacing your income for a number of years to determine a life insurance coverage amount.

Ultimately, the choice is a personal one that’s guided by your specific financial circumstances and goals. Most people have multiple and often competing wants and needs, such as a married couple who owns a home and a small business, and also has a child. However, there are some parameters that can help. A good place to start is to review your current financial obligations, and then meet with your local State Farm agent to calculate how much life insurance you need. Here’s how to get started.

Life insurance for the young adult

If you are unmarried at the time of your death, a life insurance policy can help your loved ones pay your debts and may also help cover your funeral expenses.

Life insurance for married adults

Married couples can use life insurance to replace income that would be lost if death occurs prematurely, to help pay off debt and to cover prolonged bereavement leave.

Life insurance for a co-homeowner

Consider coverage amounts that would help your partner stay in your home, pay off the mortgage and create an emergency fund.

Life insurance for a parent

  • Working parents: Life insurance plans should include adequate coverage to replace your income for a set amount of time.
  • Stay-at-home parents: Although traditional stay-at-home parents don’t necessarily have an outside source of income, the role they play in the household is essential to the family. Life insurance coverage amounts should provide the ability for the surviving family to hire others for things like child care, cleaning services and similar needs. It could also provide the ability for the widow/widower to take extended bereavement time away from work with less worry about finances.
  • All parents, working and nonworking: Think about living expenses in the present and future for children — including future education needs, inheritance to launch life as an adult and funding a trust to ensure financial security for a child with special needs.

Life insurance for a loan cosigner

If you’ve cosigned a loan for a loved one, consider having the other cosigner get life insurance to cover the balance. If a cosigner helped you get a loan, name them as a beneficiary on a policy for the amount.

Life insurance for a business owner

  • A personal policy can help your family pay off business debt and cover living expenses during any transitions, such as finding a new owner.
  • A policy with a buy-sell agreement allows a co-owner to use life insurance to buy out the surviving family’s share of the business.

Life insurance for someone near or in retirement

As you near retirement, make sure your life insurance is sufficient to cover your spouse’s needs should they outlive you. In addition, you may want to use life insurance and leave the benefits to fund legacy plans for family, loved ones or institutions.

Life insurance for those with estate plans

Life insurance coverage amounts for those with extensive estate plans may be used to help heirs pay the required taxes on any inheritance.

For help figuring out your own life insurance needs and to discuss your options, talk to your local State Farm agent today.

State Farm Life Insurance Company (Not licensed in MA, NY or WI)
State Farm Life and Accident Assurance Company (Licensed in NY and WI)
Bloomington, IL

Each insurer is financially responsible for its own products.

Neither State Farm® nor its agents provide tax or legal advice

Select a product to start a quote.


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