The financial justification for most personal life insurance really comes down to income replacement. If, for instance, I am making $60,000 a year and I have a family, even just a wife, who is dependent on that income. The whole premise with life insurance is that if I should happen to die prematurely, my income would be replaced.
In today’s economy, and really even once the economy is back on more solid footing, I think the idea of replacement of income needs to be expanded. While the basic replacement of income, the $60,000 is still valid, there is certainly financial justification in using life insurance to protect against the downsizing of our savings, investment, real estate and retirement funds. The same forces that have so many of us planning on working more years before retirement also impact the future of our family if we should happen to not wake up some morning.
I know there is a tendency to think that periodic reviews of your life insurance are just made up opportunities for agents to try to dig deeper into your pocket, but now, more than ever, a review may be a prudent move. It could be that the long term picture may be all right….bad economic times followed by good economic times, etc, but there may be some short term measures that would be appropriate such as adding an amount of 10 year term insurance roughly equal to the current economic hit that your investments and real estate have taken.
Bottom line. Financial justification for the amount of life insurance you carry is all about protection of loss of income and assets. Make sure you’re considering all of your needs.