How Much Life Insurance do You Need? It Depends on These Factors

by howmuch

Everyone needs life insurance. But how much each individual needs varies from person to person. You will want to find the right life insurance policy that accounts for how much money you earn and the cost of living in your area.

So how much should you spend on life insurance? Here’s the breakdown based on state and income levels to help you zero in on how much you should aim to spend.

  • Even the lowest wage group in the most affordable part of the country (Jackson, Mississippi) still spends more than $162,000 on life insurance.
  • Those high earners in Washington, D.C., spend the most on life insurance in the whole country, averaging more than $1 million. With the cost of living so high in the area, most consider the expense of life insurance to be worth it.
  • In Sioux Falls, South Dakota, the disparity between the high- and low-income groups is relatively low, with high earners only spending an average of $200 thousand more on life insurance.
  • In other places, like Baltimore, Maryland and Los Angeles, California, the disparity is much higher since the wealth distribution is more extreme in those cities compared to some other places in the country.

How much you want to spend on life insurance is a personal choice. But you should still weigh your particular circumstances to determine how much life insurance makes sense to protect your family’s long-term financial interests. The more money and assets you have and the higher the cost of living, the more you should consider taking out in life insurance.

Highest Life Insurance Rates

Low Income Group: 
1. District of Columbia – $344,656
2. Anchorage, Alaska – $254,630
3. Seattle, Washington – $251,006

Median Income Group: 
1. District of Columbia – $621,026
2. Boston, Massachusetts – $408,553
3. Anchorage, Alaska – $394,820

High Income Group: 
1. District of Columbia –  $1,050,947
2. Boston, Massachusetts – $685,022
3. New York City, New York – $666,045

Lowest Life Insurance Rates

Low Income Group: 
1. Jackson, Mississippi – $162,505
2. New Orleans, Louisiana – $166,129
3. Little Rock, Arkansas – $173,758

Median Income Group: 
1. Jackson, Mississippi – $246,428
2. Little Rock, Arkansas – $257,681
3. Charleston, West Virginia – $263,952

High Income Group: 
1. Jackson, Mississippi – $397,491
2. Sioux Falls, South Dakota – $399,589
3. Little Rock, Arkansas – $413,417

In Washington, D.C., the cost of living is so high that even low-income earners still spend on average more than $300 thousand in life insurance. In Jackson, Mississippi, where the cost of living is significantly lower, the highest earners don’t even pay $400 thousand dollars on average. So if Washington, D.C.’s low earners spend comparable amounts to Jackson’s highest earners, you can see that location has a strong influence “in how much you should be paying in life insurance.

We compared three income groups based on wage distribution provided by the U.S. Bureau of Labor & Statistics. These buckets represent the 25th, median, and 75th percentiles of expected earnings for the average worker in each state.  From there we took a sample of people born in 1984 who do not own a house and have $25,000 in savings. The insurance assumes income over a 20 year period, where you receive 50% of the monthly earnings with no dependents. Lastly, we exclude Social Security Benefits, and assume inflation of 2% and an annual return on savings of 4%.

Are you considering buying life insurance? Do you already have a policy and you’re considering revising it? It’s important for people to understand the averages, like in our map above, but it’s also helpful to hear personal anecdotes and stories. We encourage you to leave a comment and share your lessons learned for the benefit of our other readers.

Data: Table 1.1

 

292 views