There are two important questions to ask:
a. What financial resources will be available to survivors after your death?
For simplicity, consider three categories of resources:
- (1) Social security and other retirement-related survivor benefits;
- (2) group life insurance; and
- (3) other assets and resources. It is also important to know when these resources will become available—for example, social security survivor benefits are payable immediately to a surviving spouse with dependent children, but only after age 60 if there are no children.
b. What financial needs will your survivors have after your death?
For simplicity, consider three categories of requirements:
- (1) final expenses;
- (2) debts; and
- (3) income needs.
c. Then subtract your survivors’ financial resources (step #2) from their financial needs (step #3) to determine how large a policy to buy. Many people are under-insured, often because they skip these steps or take a shortcut (such as simply buying a multiple of annual income). For more help in determining the right amount of life insurance, see: How Much Life Insurance Do I Need?