How much life insurance do your clients need?

The familiarity you have with clientele is key to determining how much life insurance they need.

The question, "How much life insurance do I need?" is one agents get asked quite a bit. It's little wonder why, because even though policy purchases have risen in recent years - up 5 million from six years ago, according to a recent survey - many Americans acknowledge that they need more. In fact, according to polling data from LIMRA, this is true for as many as 50 million households.

For insurance veterans, determining this answer is a bit easier for them, having more experience under their belts. But for young agents - nearly a quarter of which have less than three years in the field, based on a recent poll done by Insurance Journal - the solution may not be as clear cut.

The following are a few tips that will help you steer clients in the right direction for how much coverage is enough:

How much do they earn?
It's a sensitive subject, but it's one that must be fleshed out to be as accurate as possible. Currently, the median household income in the U.S. is between $50,000 and $55,000, according to the U.S. Department of Labor. Because most Americans live up to their means rather than below it, higher earners should also have more coverage on hand to pay for the cost of living when they're gone. As a general rule, they should have the equivalent of five to ten times what they make in a given year. It could be more or less, though, depending on what types of payments they're responsible for.

"Mortgage payments account for a substantial amount of Americans' monthly expenses."

What are their financial obligations?
If everyone was in the same position in life, coverage determination would be pretty straightforward and by the numbers. Of course, this isn't the case, so your next item of business is figuring out what debts they have. For example, nearly two-thirds of Americans are homeowners, many of whom have yet to pay off their mortgages. If they were to become gravely ill or die prematurely, their family would still have to come up with the balance, which may be years away from being paid off in full. Also, you'll want to determine if their mortgage is a fixed-rate loan or adjustable rate. If it's the latter, their monthly payments may vary according to the market.

What's the family situation?
Raising children is more expensive than ever in the United States, due largely to the cost of living and inflation rising faster than wage growth. The U.S. Department of Agriculture puts the price tag at $233,610 over a 17-year period, when including expenses like food, clothing, housing, transportation and education. However, this is a conservative estimate, because many young adults live with their parents well into their twenties, according to polling data done by the Pew Research Center. In 2014, nearly one-third of 18- to 34-year-olds' primary residence was their parents', up from 20 percent in 1960. In short, make sure you know how many kids your clients have, how old they are and how dependent those offspring are on their folks.

Are they paying for tuition?
Education expenses are another major factor to weigh, as your clients may be going through college themselves or paying for their kids' tuition. According to the CollegeBoard, for the 2016-17 school year, tuition bills average $9,650 annually for in-state students attending a four-year public university. That's a lot, but it's nothing compared to what private schools charge, particularly for those coming from out of state. Plus, that's not including the costs of room and board.

Is household dual income?
Back in the 1960s, only 25 percent of households were dual income, where both spouses were in the labor force. That rate has since climbed to 60 percent, according to the latest Pew Research Center data available. In addition to determining this, you should also find out about their job security, as they may be in an industry that's experiencing cut backs or has a history of them.

There really isn't one universal formula to determine life insurance coverage sufficiency. But the more you know about your clients, the more financially secure they'll be, knowing they have the resources available when life throws them a curveball.

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