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  • Writer's pictureHarry N. Stout

303- The $183,780 Life Insurance Coverage Myth

How much life insurance coverage is enough? It is likely more than the average amount purchased in 2020. In the American Council of Life Insurers’ 2020 Life Insurance Fact Book, it was reported that the average policy consumers bought in 2020 was for $183,780. This is particularly the case considering today’s uncertain pandemic and conflict influenced world. While over 10 million life insurance policies were sold in 2020, I would suggest that consumers needed more coverage to meet their key financial needs. The likely issue is the constant balancing between coverage needed and the ability to afford the premiums.

The Protection Question

So how much protection do you need? There are several ways to answer this question. As you do your research, you will encounter online tools, calculators and rules of thumb to help you determine the amount of protection you need. I believe; however, you should do a deep dive and really look at what your coverage needs are by performing a careful assessment.

Here are the financial risks you are typically looking to cover:

  • Burial costs: the costs of a full burial or cremation

  • Final expenses: the costs of a final illness including medical deductibles and coinsurance amounts

  • Living cost income replacement (sometimes referred to as income replacement) for your dependents so that their standard of living is maintained either in the short term or for longer periods

  • Your share of the funding of the expected retirement savings for your partner or spouse

  • Your unpaid debts: this would include mortgage, car, cosigned student loans, and installment obligations

  • The remaining unpaid costs or expected contribution toward the college or trade school educations of dependents

  • Funds for special situations: - Providing for special needs children who have a physical disability or cognitive impairment - Providing for caretaking costs for an elderly family member - Repayment of large business-related debts - Business ownership transfer—this would be coverage on you that a business partner would use to buy out your interest upon your death - Estate or donation creation—leaving a legacy for your family, a charitable organization, or church

In the financial media, you will often see recommendations that you need eight to twelve times your annual gross income in life insurance protection. These rules of thumb are a shortcut method to determine the coverage needed based on the results of applying a very rough protection spectrum calculation to a variety of different family situations. I recommend that you take the time to look at your own situation in more detail and see firsthand what your protection needs are. You don’t want to shortchange yourself in this very important area.


After completing your protection assessment, you may come to the realization that the cost of the amount of coverage needed exceeds your ability to budget and pay for it. This is not uncommon and is essential for you to know. My advice is to purchase as much coverage as you can cost effectively obtain and to cover as much of your protection needs for as long as possible.

Do not buy more coverage than you can afford. The key is to buy the coverage and keep it in place. Your licensed financial professional can work with you to put in place coverage that can meet your minimum needs and secure your dependents. Take advantage of their training, skill, and experience to assist you.


To discover the answers to key questions of buying life insurance and to get more information on the benefits of coverage, check out The FinancialVerse: Today’s Life Insurance — A Protection Tool for Your Future. This book will help you prepare to meet with a financial professional and apply for the life insurance coverage that you need.

Ready to improve the quality of your financial life? Harry is the host of a new podcast from the FinancialVerse where he shares practical ways to relieve money stress and anxiety. Each 7 to 10-minute episode is designed to fit into your busy lifestyle.

Subscribe today or just ask Alexa or Siri to play the FinancialVerse podcast.

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