To establish the amount you need to replace your income, the generally accepted formula is to take your annual income and multiply it 10 times, and then subtract 25% of that amount. The idea is that you leave behind enough money for your loved ones to invest, so that at a 10% return they would receive the same income as though you were still able to provide for them. The reason you subtract 25% is because your expenses as a consumer and member of the family are no longer there. Add to this “income replacement”, an amount to cover your final expenses and pay your debts, and you have a rough total of your insurance needs.

If you are concerned about the other potential needs after you are gone, it is quite simple to add an amount as a “leave behind lump sum” over and above what you might consider a “present need” to cover the other things that you wish to provide for.

Please keep in mind that we are dealing with basic life insurance needs. This is a quick analysis which doesn’t take into account the concept of “estate protection”. This is where you have accumulated a fair amount of assets or “wealth” and you wish to use life insurance to maintain the value of your estate on your death, especially in regard to taxes.