New parents will experience a seemingly endless set of changes in their lives, not the least of which are the financial changes and new financial responsibilities that arise. For new parents who just had their very first child, the issues that arise can seem overwhelming. One of the first things new parents will need to do is purchase life insurance.
The process for taking out new life insurance policies is straightforward, but almost as soon as you begin you’re faced with a single question that will end up driving the rest of the insurance buying process: how much life insurance do you need? Simply choosing a large, round number without any consideration or analysis could easily end up either providing you with inadequate coverage, or too much coverage (which costs you too much in premiums).
I’ll provide two different methodologies to answer the question on how much life insurance you’ll need. First I’ll discuss a simple method to help decide the bare minimum or “Basic Coverage” amount that everyone should have. Second I’ll discuss a more “Comprehensive Approach” to calculate how much life insurance (a “nice to have” level of insurance) you might wish to purchase.
If you only have a minute or two just read about Basic Coverage, but if you want to feel more comfortable about your life insurance coverage please read and use the Comprehensive Approach.