Many life insurance agents will tell you that there’s a “rule of thumb” when purchasing life insurance. The common formula many recommend are 7-10 times your annual income.
Applying a generic multiple to an income leaves the consumer at risk of overestimating or underestimating how much coverage they need.
Quite frankly, your life insurance agent is being lazy and doesn’t want to do a needs analysis.
Old rules of thumb are dead. There are considerable differences in the needs of each consumer.
People buy individual life insurance for different reasons: income replacement, debt repayment, future college costs, pay off the mortgage and cover burial expenses are just some reasons consumers are buying life insurance. Everyone’s situation is different and your life insurance agent should walk you through a needs analysis if you don’t know exactly what you want.
Obtaining the adequate amount of coverage for the lowest price available is something only an experienced and independent life insurance agent can offer. We don’t use any scripts sent down from corporate to sell you 7-10 times your annual income, we can customize it. We don’t have to use a certain life insurance company, we can use any company fits your situation the best.
Bottom line. Don’t get caught up in the “rule of thumb” income multiplier for life insurance. Ask yourself why you’re purchasing this coverage and work the numbers out from there. If you need some guidance, give us a call. We can send you a worksheet or work out what you're trying to accomplish over the phone.