Exactly how much life insurance a person needs varies based on factors such as income, expenses, family size and if the individual has any dependents. Some experts recommend having a life insurance policy that covers between five and 10 times a person's annual income.
Most financial experts recommend that consumers consider a number of different factors in order to determine how much life insurance is actually necessary. These factors include the needs of a person's family, any future financial obligations, such as paying for a dependent's college expenses, and resources that are already on hand. A consumer may also want to consider the costs of final expenses such as estate taxes, funeral arrangements and a burial plot.
When looking at family needs, an individual should consider household expenses, such as a mortgage, utilities and insurance, as well as any medical bills and other outstanding debts, such as student loans or credit cards. Future financial obligations often focus on college tuition but can also include care for a disabled child or even care for an elderly parent. The resources that an individual should look at include any income earned by a spouse, savings accounts, retirement plans and any estimated survivor's benefits that could be paid by Social Security.