By Rick Kahler via

Life insurance is an important financial planning resource. However, it is not meant as a source of income. Its primary purpose is to provide the means to replace income or to pay taxes or debts.

Not everyone needs life insurance. Once you determine that you do, the next big question is how much is appropriate.

Here is one way to help answer that question. It is not a formula, but a very rough checklist to help you estimate your individual insurance needs. For couples, I suggest separate lists. Not all of the information will be the same for each spouse.

First, list the following:

1. All debt (mortgage, credit cards, car loans, student loans, etc.).
2. Anticipated kids’ college education needs (if in doubt, use $120,000 per child).
3. Estimated annual living expenses, multiplied by 1.33 and multiplied again by the number of years from now until the youngest child graduates from college.
4. Estimates for large one-time future expenses for which there is no savings (car purchases, weddings, major home repairs or updates, relocation expenses, educational costs for surviving spouse).
5. The annual amount of maximum contributions allowed to all retirement plans (if in doubt use $64,000). Multiply the total by the difference between age 70 and your current age. For couples, figure each spouse’s total separately.

Item five is something people often don’t think of as a need that life insurance might cover.

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