Buying Life Insurance in 2023? Here's How Much Coverage You'll Need

Don't buy life insurance without reading this advice.

Anyone thinking about finances at the beginning of a new year probably has many tasks on their to-do list. For example, paying off debt or saving more for emergencies may be possible goals.

There's one step most people absolutely must make sure to take, though, if they haven't already. That step is getting life insurance in place if there are any dependents such as a spouse, child, or parent relying on them.

While this may be something many people overlook since they're probably not considering a worst-case scenario, the reality is that something can happen anytime and no one should leave their family unprotected when there are life insurance options out there.

For those who are not sure how much coverage to buy, there's a simple way to find out. Read on to learn what it is.

This is the type of coverage needed

First and foremost, consumers need to make sure they get the right kind of life insurance. For almost everyone, that means buying term life coverage.

A term life policy stays in effect for a set term (hence the name). Usually, it's around 10 to 30 years, although insurance buyers can pick a longer or shorter time depending on the insurer. Consumers should buy coverage for the period of time people will depend on them.

Whole life policies provide indefinite coverage as long as premiums remain paid, but are much more expensive. For most people, they're unnecessary because people stop depending on their income at some point (like when the kids are grown and retirement has come).

Unless someone requires lifetime coverage (such as a parent who has a disabled child in need of lifelong care), the cheaper term policy is most likely the better bet.

This is the amount of coverage needed

Life insurance buyers also need to decide how much coverage to purchase. This means deciding on the size of the death benefit (the money that would be paid to beneficiaries if the policyholder dies during the term).

This can be tricky, but a simple formula makes the process easier. Basically, anyone buying life insurance coverage should consider using the DIME formula to estimate coverage needs. DIME stands for:

• Debt: The death benefit should provide the money to pay off all balances owed.
• Income: The income the deceased would have earned for the rest of his or her life should be replaced. The death benefit should provide enough money to do that.
• Mortgage: The death benefit should ideally repay the entire mortgage balance if surviving family members will stay in the home or if the home will be passed down to heirs.
• Education: It should also provide enough money to pay for the schooling all children will need.

So to find out how much life insurance coverage to buy in a new year, simply consider these four criteria. After estimating the amount needed for each, add up the total and make sure the death benefit is around that amount.

Taking this step during the new year will help ensure loved ones can be provided for even if tragedy strikes. It's well worth setting as a resolution to save family members from potential financial disaster.