How Much Life Insurance Do I Need?
Your Life Insurance coverage needs are as unique as you are.
At AmFi, we believe life insurance should be tailored to each individual based
on their specific financial circumstances, responsibilities, and future plans.
The amount of life insurance coverage you need can change over time.
As your life changes, so should your insurance; whether it’s a new addition, mortgage, or milestones, regular reassessment ensures your coverage aligns with your evolving needs.
You’ll want to consider...
Before you start to calculate your coverage needs, there are several factors you’ll want to consider:
Household Expenses
Ensure your family can maintain their current lifestyle by securing coverage for day-to-day expenses such as housing costs, utilities, groceries, and transportation.
College Expenses
Provide adequate financial support for your dependents’ education in the event of your death.
Outstanding Debts
Protect your loved ones from financial burdens like outstanding loans or credit card debts.
Medical Expenses
Safeguard your family’s financial security by ensuring there are funds available to cover medical bills, ongoing healthcare expenses, or potential long-term care needs.
End-of-Life Expenses
Cover the costs of your funeral, burial, or cremation to give your loved ones peace of mind in a difficult time.
Mortgage
A mortgage is a substantial financial commitment, and if you were to pass away, your family might be left with the responsibility of continuing mortgage payments.
Household Expenses
Guarantee that your family can sustain their existing lifestyle, covering day-to-day expenses such as housing costs, utilities, groceries, transportation, and other routine expenditures.
College Expenses
Ensure adequate financial support for your dependents' education in the event of your death.
Any Other Debts
You’ll want to ensure that the policy's death benefit can cover outstanding financial obligations and prevent a burden on your beneficiaries.
Final Expenses
You may want to be sure that there are funds available to cover funeral and burial costs, relieving your family of the financial burden associated with end-of-life arrangements.
So, how much life insurance coverage
do you really need?
While consulting with an agent is optimal for a comprehensive assessment, if you prefer a broader
perspective on life insurance, this straightforward calculation can serve as a solid starting point,
representing your “ideal coverage amount.”
Meet Adam
Adam is 40 years old, he makes $65,000 a year, has a wife and two kids ages 7 and 11.
Adam wants to cover these expenses with his life insurance policy:
$175,000
to pay off his house
$90,000
for future college tuition costs
$20,000
for his vehicles
$7,000
for funeral and burial
$5,000
for credit card bills
$297,000
IN TOTAL EXPENSES
Now Here Is The Math...
Let’s take Adam’s salary, $65,000, and multiply it by seven to get Adam’s ideal life insurance coverage needs.
How Is That Money Spent?
The $455,000 in coverage is tax free cash to be used at the discretion of Adam’s beneficiaries. However, Adam’s family would likely use it to pay off debts and provide financial cushion to supplement for the loss of Adam’s income.
DIME Formula
The DIME formula is a common method used to determine how much life insurance coverage is necessary. DIME stands for Debt, Income, Mortgage, and Education, which are the four main factors that are considered when calculating life insurance coverage.
Once you have these four figures, add them together. This will give you a rough estimate of the life insurance coverage that you need.
Here's how to calculate life insurance coverage using the DIME formula:
Debt
Add up all your debts, including mortgages, car loans, credit card balances, student loans, and any other outstanding debts.Income
Determine how much income your family would need if you were to pass away. This includes both your current income and any future income that you would haveMortage
Calculate how much it would cost to pay off your mortgage in case of your passing.Education
If you have children, consider how much it would cost to pay for their education, including college expenses.
The 10 Times Income Rule
The “10 times income” rule for life insurance suggests purchasing a policy with coverage equal to 10 times your annual income. This is used as a broad starting point to ensure that, in the event of your death, your beneficiaries have enough financial support to cover expenses like living costs, debts, and future needs. However, it doesn’t account for individual factors like outstanding debts, savings, or specific family needs, so many people adjust this number based on their personal situation.
Term vs Permanent Life Insurance
Term life insurance provides coverage for a specific period, usually 10, 20, or 30 years, and pays a death benefit if the policyholder dies during that term. It’s typically more affordable than permanent life insurance, but once the term expires, the coverage ends unless renewed or converted to a different policy.
Permanent life insurance provides lifelong coverage and includes a death benefit as well as a cash value component that grows over time. Unlike term life insurance, it remains in effect as long as premiums are paid, and the policyholder can borrow against or withdraw from the cash value while still alive.
Tips for Calculating Your Life Insurance Needs
- Remember that life insurance is an integral part of an overall financial plan. The amount you need should be based on factors like your income, debts, future expenses, and the financial needs of your dependents.
- Consider buying more than one policy to tailor coverage to your changing needs. This could look like supplementing a permanent policy with a term policy or specific life events like paying off a mortgage or funding education costs.
- Talk with your family about your needs to get a comprehensive understanding of the financial support they’ll require in your absence. This helps ensure the coverage aligns with your shared goals and responsibilities.
- Choose a life insurance policy with higher coverage than you think you need. This will allow for unexpected expenses or changes in your family’s financial situation.
- Reassess your policy regularly to ensure your coverage stays aligned with major life changes.
Ready To Take The Next Step?
The formula, multiplying your salary by 7, provides a solid beginning, but you don’t need to navigate this process by yourself. A life insurance expert from AmFi is ready to assist you in applying for the ideal type and amount of coverage. We’ll address all your questions, and identify the right life insurance plan that aligns with your budget and goals.
Life Insurance FAQ
FAQ
Term life insurance provides coverage for a specific period and offers a death benefit if you pass away during the term. Universal life insurance, on the other hand, provides lifelong coverage and offers a death benefit alongside the potential to accumulate cash value.
Most adults who are in good health can apply for life insurance. Adults under the age of 59 are eligible for universal life insurance policies. Only individuals between the ages of 20 and 50 are eligible for term policies. You may not be eligible for life insurance if you have cancer, heart conditions, or other life-threatening medical conditions or lifestyle habits.
Absolutely! We pride ourselves on being there for you when you need us. We process claims in less than 24 hours and typically have the cash in your bank account within 3 days.
Members with SGLI coverage have two options if they want to convert their life insurance after their service ends. The first option is that they can convert their SGLI to VGLI, a renewable term insurance that has no cash value that builds over time and has premiums that can increase over time, making it a more expensive option long-term. The second option is that they can convert their SGLI to an individual commercial policy with providers like American Fidelity. American Fidelity’s coverage is meant to provide a more permanent alternative that keeps your costs low and provides full benefits, including cash accumulation.
SGLI is issued to active-duty service members, and once these service members are discharged, they have 120 days during the military separation period to transfer to either VGLI or a commercial permanent policy. Additionally, Retired Reserve soldiers are typically not eligible for SGLI and must convert to one of these options. You cannot convert SGLI to both VGLI and individual commercial life insurance at the same time. However, there is nothing preventing you from converting to one and separately obtaining the other. Converting your SGLI to a VGLI policy can be cost-effective at first, but over time, it doesn’t provide any living benefits and gets more expensive as you grow older. Our universal life insurance policy allows you to stay covered at a fixed rate and offers living benefits like cash accumulation.
To convert from SGLI to an individual permanent insurance policy with providers from participating companies like AmFi, you must also convert within 120 days of the date of separation from the military. After this period, you still have an additional year to convert, but you would have to show proof of insurance and good health to convert if it’s past the initial 120-day period.
Policies with AmFi start at $9 per month. The exact amount you pay each month (your premium) is determined by your choices in the coverage amount and length of term, as well as your age, health, and lifestyle choices.
No. With our 5, 10, and 20-year term policies you will be charged the same amount every month for the duration of your policy. When the policy expires, your rate may change based on age and insurability at that time.
We sure do. We don’t advise canceling your policy because your coverage will lapse, but if you cancel within the first 30 days, then we will issue you a full refund. If you cancel after the initial 30 days, then we’ll simply stop charging you.
In addition to life insurance coverage, this policy grows cash value that isn’t taxed right away. This cash asset is a tremendous advantage of our universal policies.
Please contact our office or one of our agents to discuss the universal life insurance policy and to see whether this is the best policy for your needs.
Just like with all our policies, the death benefit is completely tax free. The universal policies accumulate cash value that is tax-deferred. Please contact our team to learn more.
The Policy Owner must complete the appropriate form for the requested change. Forms may be downloaded and printed from the Forms Link after logging in. The Policy Owner may also contact a Service Representative at the Home Office or send us a message through our Contact Us page.
You may contact a Service Representative or register online. By registering online you will be able to view premium payments, make withdrawals and much more. Click here to register.
Upon the death of the Insured, you will contact the Home Office Claims Department to report the death. Be prepared to advise us of the insured’s name, the date and cause of death, and the name, address, and telephone number of the person who should be contacted. A Claimant’s Statement and additional information on how to file a death claim will then be sent to the named beneficiary(ies). You may click the “Claims” link at the top of this page to download the Claimant’s Form and instructions.
Please contact our office immediately to update your banking details and ensure that your valuable coverage isn’t lost.
