How Much Life Insurance Should You Have?

Nate Crosby |

In a recent blog, we discussed the first rule of life insurance: get the amount right.  We concluded that if you were to pass away today, your loved ones would not care what type of policy you had, they would only care if the benefit was enough overcome the financial loss of losing you.

How much life insurance Should I have?   That is a common question.

There are two basic approaches for determining how much life insurance you should have: Needs Approach and Human Life Value.  With the needs approach, you total predictable expenses your family will have in the future.  Often, one will look at the balance on the mortgage, vehicle debt, educational expenses, credit card and student loan debt as well as income replacement.  These items are estimated then totaled to produce a “needs based” approach to determining a life insurance benefit.  The major flaw in this method is what we “needed” today, may not be what will be needed in the future because lives have a way of changing unpredictably.  Family members may get sick, lose jobs, or relocate.  Chances are your own life has taken some twists and turns in the past 5 or 10 years that you did not see coming.

The second basic approach is called “Human Life Value.”   It is said that we cannot put a value on life.  Oh, but the insurance company has!  A simplified formula for calculating human life value is to subtract your age from your planned retirement age.  Then you take that answer and multiply it by your annual income.  A 40-year old who plans to retire at 65 and makes $40,000 per year can qualify for $1,000,000 in coverage.  Someone might say, “Wow $1,000,000, they are worth more dead than alive.”  That statement would be incorrect.  Had they lived a long-life their family would have received that income over their working life and that’s assuming the person never got a raise.  They are worth more alive than they are dead.  There of course are more complex methods for calculating human life value but for practical purposes we aim to get clients as close to human life value as possible while still staying within a given budget for insurance.  Human life value in my opinion is a safer way to calculate life insurance coverage as it will overcome more unpredictable life events.

Our goal is to get as close to human life value as possible within the budget we have allotted.  Now, let’s look for ways to get the coverage at no additional cost. A 40-year old male, non-smoker in good health can purchase an $800,000 term life insurance policy for about $400 annually.  If you raise the deductibles on your auto and home policy, you will likely save around $200.  Additionally, have our office or your agent quote your insurance on the open market, chances are you’ll find an additional savings.  With some effort it is highly likely you can put human life value or near human life value coverage in place at no extra expense. That my friends is planning done right.  Until wee meet again, never stop building an intentional life.

Crosby Advisory Group, LLC is a Registered Investment advisor in the state of Ohio.  At any time you may request a copy of our Form ADV 2A and Form ADV 2B, which provides information about the qualifications and business practices of Crosby Advisory Group, LLC.  This article is for information purposes only and should not be taken as direct investment advice for you without a consultation. Investing involves risk and you should carefully consider all risks and expenses before making an investment. Crosby Advisory Group, LLC is also a licensed insurance advisor.  Insurance products are serviced through Crosby Advisory Group, LLC.  If you have any questions you can send us a comment by visiting our website at Our office number is 419.496.0770