If tragedy struck and a wage-earning member of your household were to die, what impact would that have on your family’s financial situation? For about 60 million families in the United States who have no or limited life insurance, this would cause severe financial hardship.

Why don’t more families have this important source of financial protection and how do you know if you have enough coverage?

Why Americans are Uninsured or Underinsured

Life insurance has seen a slight decline over the last 10 years. In 2010, 63% of Americans had a life insurance policy. In 2020, that number dropped to 54%. The reasons for this decline include a misconception about what life insurance provides, its access, and how to accurately calculate the coverage you need and the price you can expect to pay.

In the wake of the COVID-19 pandemic, the tides are beginning to change. About 58% of Americans said that the pandemic gave them a heightened awareness of the importance of life insurance. Even so, misconceptions about how much coverage a policy provides or how much you need continue.

With employer-provided life insurance, many mistakenly believe that they don’t need any additional coverage. However, employer policies are often not enough. Usually, they’re capped at $50,000 or less or only pay out two times your annual pay.

How Much Life Insurance do you Actually Need?

If you have an employer-provided policy, you might be wondering why you would need more coverage. Twice your annual salary seems like a nice sum of money, right? For many families, however, this is far from enough.

It’s even less adequate if you have young children who are years away from adulthood. Think about it. Could you provide for your family through the kids’ college and into your retirement on just two years of your salary? Probably not.

Here are a few guidelines from Fabric, a company that can help you determine how much life insurance you actually need, and give you a quote in 30 seconds:

• Add up the basic living expenses your family has for the year, excluding your mortgage (you’ll add this later). Then, multiply this by the number of years they would need that support.

• Add on the remaining balance of your mortgage, any other debt you have, the total cost of college tuition for all kids, and any other big-ticket items you might be planning for in the future.

• Add an estimate for funeral expenses.

• Subtract any existing retirement savings and other assets your family would inherit.

• Subtract any existing life insurance coverage you might have from your employer.

If your calculations reveal that your existing coverage wouldn’t be enough, it’s worth looking into how much it would cost for a policy that actually meets your family’s needs.

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