Average Life Insurance Policies

Most people today have heard of life insurance policies. Some even hold such a policy. Unfortunately, even those that carry a policy may be unaware that their coverage could fall short of enough to sustain the lives of their families in the event of their demise.

American life insurance policies bought today average $100,000 in coverage. Financial analysts suggest that a person’s life insurance payout should be equal to at least six times their annual income. If you do the math, this would mean the holder of a $100,000 policy could only make about $16,500 a year in order for this policy to be effective enough to sustain the holder’s family’s long-term costs. And this is on the low end of the spectrum. Six times the annual income is considered sufficient to maintain the family only if the holder of the policy has no significant debt to their names that will be left behind in the event of their death. For policy holders with mortgages and term loans, the minimal estimation of coverage is closer to ten times their annual income. Therefore, the holder of a $100,000 policy who has a mortgage and term loans could only make about $10,000 per year in order for their coverage to be adequate to cover their family’s needs.

Today’s median annual income is between $30,000 and $40,000. This being said, it’s apparent that a 100,000 policy is not enough for a majority of the American population. A more accurate amount would be closer to $180,000 ( $30,000 / year at 6 x annual income) to $240,000 ( $40,000/ year at 6x annual income), and this is an estimation for the bare minimum, for someone who doesn’t have any significant debt that will be left behind to be paid when they pass away. Someone who does have a significant amount of debt should have a significantly higher amount of life insurance coverage - up to 10 times their annual income. By making sure the coverage is at the level it needs to be, the policy holder is able to ensure that their family will be able to live in their accustomed lifestyle without any further undue hardship in the event of the holder’s death.

This being said, it is still true that the average life insurance carrier is not carrying enough coverage. It is important to be informed about any major decisions we make in life, but it seems that many people just aren’t as informed as they should be as far as life insurance coverage. By making sure that we are informed to the best of our abilities and by turning over all the rocks, we are able to make the best informed decision regarding our insurance policies - which is good, considering it’s our families and their lives that will be left to deal with it if we don’t, and that’s definitely one less thing they should have to worry about!