Life Insurance: How Much is Enough?

If you have a spouse or children who depend on you financially, you likely need life insurance. But how much? One rule of thumb says your coverage should be equal to five to seven times your annual salary. That means that, if you're earning $75,000 a year, you might buy a $375,000 to $525,000 policy. There's also a slew of online calculators that can help you tackle the question, but the answers offered can differ widely. Indeed, either method - a multiple of your salary or an online calculator - may leave you buying much more or less coverage than you really need.

What to do? For a more considered answer, you might figure out how long you'll need coverage for and what expenses your family are apt to face during that time. If you have young children, you could be looking at two decades of expenses for your family, including the ever-rising cost of college. If your spouse isn't working or you have a large mortgage, you would also need to factor that in. Result: Even coverage equal to seven times your $75,000 income probably wouldn't be nearly enough.

Keep in mind that, while you might have the right coverage today, your need for life insurance will change over time, so consider occasionally discussing your situation with your insurance agent or financial advisor. If your income increases or your family grows, you may need more coverage. But as the kids leave home and your wealth increases, you may not need such a big policy--unless you plan to use it for estate-planning purposes.

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Since life insurance is medically underwritten, you should not cancel your current policy until your new policy is in force. A change to your current policy may incur charges, fees and costs. A new policy will require a medical exam. Surrender charges may be imposed and the period of time for which the surrender charges apply may increase with a new policy. You should consult with your own tax advisors regarding your potential tax liability on surrenders.

Citigroup Inc. and its affiliates do not provide tax or legal advice. To the extent that this material or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Any such taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor.

Citi Personal Wealth Management is a business of Citigroup Inc., which offers investment products through Citigroup Global Markets Inc. ("CGMI"), member SIPC. Insurance products are offered through Citigroup Life Agency LLC ("CLA"). In California, CLA does business as Citigroup Life Insurance Agency, LLC (license number 0G56746). CGMI, CLA and Citibank, N.A. are affiliated companies under the common control of Citigroup Inc. Citi and Citi with Arc Design are registered service marks of Citigroup Inc. or its affiliates