Death, just like taxes, is inevitable, though most people may not be keen to dwell on it. But ensuring that you have the right financial resources in place, including life insurance, is important if you have loved ones who depend on your income. Life insurance can help cover funeral and burial expenses, pay off lingering debts, and make managing day-to-day living expenses less burdensome for those you leave behind.

If you don’t have life insurance, or you do but are unsure about whether your policy is sufficient, here’s how to evaluate your coverage needs.

Life insurance policies can offer significant financial assistance to a policyholder’s loved ones, thanks to the death benefit. However, policyholders must pay premiums to maintain coverage. They should carefully consider their exact coverage needs to avoid overpaying without giving up needed coverage. This article will dive into several factors people can use to determine the amount of coverage they need. That way, they can decide between higher-cost, higher coverage term, and permanent policies or lower-cost, lower-coverage life insurance with no medical exam.

Rule of thumb: Most financial planners recommend an amount 10-15x your current income. Life insurance rates are influenced by several factors, but your health has the biggest impact on the final cost. One of the first steps to buying life insurance is determining how much coverage you might need.

1. Consider the Number of Dependents They Have

Life insurance is most often used to provide for a policyholder’s loved ones. Therefore, potential policyholders should consider how many dependents they have to calculate the coverage they need. According to LIMRA’s 2022 Insurance Barometer Study, 68% of insured people with financial dependents feel financially secure.

Children are the most common dependent, but not the only ones. For instance, someone could be taking care of their aging parents. They may want additional coverage to pay for a caregiver or long-term care for their parents.

2. Evaluate Their Living Expenses

After dependents, potential policyholders should look at their overall spending.

For example, a policyholder whose family lives modestly in an area with a low cost of living will not need as much coverage as someone who spends more and lives somewhere with a higher cost of living.

Prospective policyholders should try to estimate future expenses as well. For example, if one of their beneficiaries may need more medical care in the future, getting a higher death benefit to cover those costs can be worth it.

3. Look at Their Debt Levels

When someone passes away, their estate is generally used to pay off debts. This reduces the amount of wealth they can pass to their heirs.

Prospective policyholders should therefore consider how much debt they have. For example, a policyholder with a mortgage, auto loan, and student loan may want to purchase more coverage so their loved ones can pay those debts off.

4. Consider Estate Planning Needs

Life insurance death benefits are generally tax-free for beneficiaries. This can allow the policyholder to pass a larger portion of their wealth onto their heirs.

Policyholders should understand their locality’s estate and inheritance taxes. If they live in an area with higher estate taxes, they may want to purchase additional coverage to pass more of their wealth down. Consult an attorney or tax professional for help with your specific situation.

Buy the Right Amount of Life Insurance Coverage

The more coverage a policyholder buys, the higher their premiums will be. Therefore, planning for the right amount to protect beneficiaries within their budget is wise.  To do this, they should consider how many dependents they have and their current and future living expenses. Additionally, they should note their debt levels and familiarize themselves with local estate taxes.

Following these tips, and then shopping for multiple quotes will help policyholders get the coverage they need while locking in the best possible rates.

Fidelity Life offers no medical exam life insurance policies and makes it easier for people to get coverage. Life insurance shoppers can provide information to help match them with a life insurance policy that meets their needs and can discuss their options with an agent or shop online for life insurance quotes.