The idea behind life insurance is a pretty simple one. Life insurance provides protection for your family members and other dependents in the event of your death. It is payable upon death, and the money can help a surviving spouse and minor children pay the bills and move on with their lives.
The amount of life insurance you need depends on a number of factors, including your income, your assets and how much money your survivors need to maintain their current lifestyle. If you make $100,000 a year and have a couple of kids in college, you might need life insurance protection of a million dollars or even more. If you also have a sizeable nest egg, say several million dollars, you might not need as much life insurance. That is because your spouse and children could generate income from the investments you leave behind, making them less reliant on a big life insurance payout.
For the same reason, you might not need as much life insurance coverage after your children have made it through college and are financially independent. This is particularly likely if you spouse also works and earns an income sufficient to pay the household expenses. Some people like to maintain a small amount of life insurance protection, perhaps $25,000 to $50,000 to help with transitional expenses as the investment portfolio is being set up.
You also may not need life insurance when you are young and just starting out. Remember that the whole purpose of life insurance is to protect those who depend on your income. If you are unmarried and have no children, chances are you do not need life insurance yet.
If you are caring for an elderly parent, you might want to carry life insurance with a death benefit of $100,000 to $250,0000 to provide the care they need if you were gone. You might want to also look into a long-term care policy for your parents, in addition to your life insurance coverage.