How much life insurance do you need? There are general estimates available based on multiples of income. However, if you are looking for a more accurate estimate, consider completing a “DNA test.“ A DNA test is a “Detailed Needs Analysis“ that takes into account a wide range of financial commitments to help better estimate insurance needs.
The first step is to add up needs and obligations.
Start with your family’s short-term needs. How much will it cost to cover your final expenses, such as a funeral, final medical bills, and any outstanding debts, such as credit cards or personal loans?
Next, look at your family’s long-term needs: how much will it cost to maintain your family’s standard of living? How much is spent on necessities like housing, food, and clothing? Also, consider factoring in expenses such as travel and entertainment. Answering the question, “What would it cost a year to maintain this lifestyle?“ is a good place to start.
Finally, look at your family’s future obligations. Will aging parents need some kind of support? Will children or grandchildren need help with college costs? And so on.