People say life insurance should cover 10 times your income, but as a financial adviser I can tell you that isn’t always enough

The author is not pictured. Ariel Skelley/Getty Images

I’ve had life insurance coverage in place since my wife and I had our first child, but I’ve added to our coverage several times as our family has grown. These days, I have around $US2.5 million in term life insurance coverage for my wife and kids, which is probably more than they could ever need if I should suddenly pass away.

Then again, there’s a lot to think about and make sure life insurance covers, and there’s really no “perfect” formula to determine how much life insurance coverage you should buy anyway. I also know for a fact my family would never think I had “too much” coverage for their needs.

I’m also 100% certain the common wisdom to purchase 10 times your income in life insurance coverage is leaving families at risk. There are a myriad of reasons 10 times your income – or $US100,000 in coverage for every $US10,000 in salary you earn each year – may not even be close to enough.

Here’s everything you should think about as you decide whether or not to follow this popular advice.

Your income matters, but so do your expenses

While term life insurance is mostly intended to replace your income once you’re gone, there’s a lot more to think about other than the size of your paycheck. You also need to consider how much debt your family has, including how they might pay it off if you were to pass away before your time.

If your family has a large mortgage, several car loans, credit card debt, and even student loans, for example, it’s highly possible having just 10 times your income in coverage won’t be enough. Even if you earn six figures and buy $US1 million in term life insurance coverage as a result, this amount could disappear in a hurry once you start thinking over all the liabilities it needs to cover.

Your spouse may need to stop working

Another reason to buy more life insurance than you probably need is the simple fact that life may change once you’re gone. If your spouse has a job they love that brings in a nice income now, that doesn’t mean this situation will stay the same if you passed away.

It’s highly possible your spouse will need to take some time off to grieve, and it’s also possible they will want to cut down on work hours or even stop working all together once they face life alone – especially if you have kids.

Life insurance should replace your income for sure, but don’t forget that it may need to fill in the gaps if your spouse or partner faces a drop in income for any reason. They may desperately want to stay home, but how much life insurance you have may make that decision for them.

Policygenius can help you compare life insurance policies to find the right coverage for you, at the right price »

Have kids? Make sure to plan for college

It’s easy to think you don’t need a ton of life insurance when your kids are young, but you have to remember that kids don’t stay little forever! Daycare bills will eventually be replaced with huge bills for sports and after-school activities.

And the bills don’t stop once they reach college. Considering the high costs of higher education, you may want to consider whether you want enough life insurance to pay for all or part of your children’s higher education.

Your kids could always borrow the money for school, but giving them a tuition-free degree is something you would never regret. Fortunately, having enough life insurance can make this dream a reality.

There are some things you just can’t plan for

Also remember that there are some life circumstances that nobody sees coming. Maybe your entire family is healthy and happy now, but who knows what could happen five or ten years from now.

Having plenty of life insurance can help your family out if your spouse or partner gets sick and cannot work, or even if one of your kids winds up requiring expensive surgery or pricey long-term care.

You can plan for a lot, but you just can’t plan for everything. Life insurance can be there to cover any surprise expenses your family might face, no matter what they are.

Life insurance is affordable, so there’s no excuse

Buying 10 times your income in life insurance may be common wisdom, but I tend to believe this advice is outdated. Term life insurance is so affordable that it hardly makes sense to go without enough coverage to replace your income and pay off all your debts – all while accounting for life’s many “what ifs.”

Since term life insurance is so affordable, there’s really no excuse to avoid buying enough coverage to help you sleep great at night. Remember that your family will never wish you had less coverage if you pass away – they will either be happy with what they have or desperately wish you would have bought more coverage while you had the chance.

You have the opportunity to leave a legacy behind, but you also have the opportunity to leave your family broke and struggling to get by. This is one decision where you won’t get a second chance, so make sure to choose wisely.

Policygenius can help you compare life insurance policies to find the right coverage for you, at the right price »

Jeff Rose is an entrepreneur disguised as a financial adviser, author, and blogger. Jeff is an Iraqi combat veteran having served in the Army National Guard for nine years, including a 17-month deployment to Iraq in 2005. He’s best known for his award-winning blog and book, “Soldier of Finance: Take Charge of Your Money and Invest in Your Future.” He’s also the founder of Wealth Hacker Labs, a movement to teach accelerated wealth-building strategies to future generations.