When we purchase other types of insurance coverage, such as auto or homeowners insurance, we base the amount of coverage on the value of the item being protected. How do we determine then the amount of Virginia life insurance that someone needs?

First of all, we need to determine the value of what is being protected. While no life insurance policy can insure we will live forever, it should more accurately be referred to as death insurance. Doesn't have a nice ring to it, does it? We will continue to call it life insurance then.

How do we calculate the value of someone's life? Think of it in this way. Let's imagine that you are a money machine. Every payday the machine produces a paycheck. What if the machine broke down all of a sudden and could not be repaired? Where would the future income for mortgage payments, raising children, college educations, car payments, etc. come from? We are all money machines and there can be no assurance that one day the machine might break down prematurely. While nothing can replace a human being or the other true values of life, insurance can be used to replace the broken machine. The proper amount of coverage can take care of all of the current and future needs just as if the machine had never broken.

Are you starting to get the picture that Virginia life insurance is mainly a replacement of future income? While there are many ways to calculate the amount of life insurance needed, the proper amount would take care of all of the future expenses and goals had we lived.

While everyone's situation is different, here are some general questions to ask yourself and guidelines to follow:

- Are others dependent upon my income such as a spouse or  children? 
- Do I have current debts such as a mortgage, credit cards or other loans that would need to be settled? 
- Do I have children that are likely to attend college and had I planned to fund their education? 
- Do I own a business that would suffer or close at my death without the funds to hire my replacement?

If you added together the future income that we planned to make along with the other expenses, the figures could be staggering. The minimum amount of coverage for someone answering yes to the questions above would be 10 times their annual income. Of course, the amount of coverage can be reduced by the amount of funds already put away in savings to take care of these needs. The amount can also be reduced as these needs are reduced over time. The bottom line is that our needs for Virginia life insurance change constantly and should be reviewed often.


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The discussion of this issue requires that we first of all analyze the purpose of Virginia life insurance. As morbid as it is, life insurance only pays off at death. All forms of insurance are a "necessary evil" in order to repair or replace something of value such as a car, home, lost wages, etc. If we knew that we would never have any form of loss, we would not waste money on insurance. There must be a loss in order for any type of coverage to pay. Coverage is purchased to restore a loss, not to make a profit. The odds are always in favor of the insurance company, otherwise, insurance would not exist. We sometimes begrudge the insurance companies of the odds being in their favor, including Genworth and Metlife, but we are happy that our losses are few and far between.

It goes without saying that the loss of a child would be devastating and heart breaking. There is no amount of insurance money that can replace the value of a child. It is hard to set the emotions aside when it comes to your children, however, it is those same emotions that cause people to make ill-advised purchases. Virginia life insurance has a primary purpose of replacing the lost income of a bread winner. Does a child bring in any income? Generally not, conversely a child uses income. Any of us with children know how expensive it is to raise them. We gladly bear those expenses, but monetarily speaking, children are an expense. Therefore, in most cases, children need little or no coverage.

There are a few instances whereby life insurance in Virginia may be necessary for a child:

- Final expenses - Funerals can be expensive and there may not be sufficient cash assets to fund a unexpected funeral. A small Virginia life insurance policy for a child could be the solution at a minimal premium.

- Future insurability - Future health problems could prevent someone from being able to purchase life insurance in Virginia after reaching adulthood. There are merits to this, however, the amount of insurance that someone may eventually need as an adult is so great compared to that of a child that it would be hard to justify the cost of carrying a large policy for all of the years it was not needed.

- The younger you are, the less it costs - While this is true, life insurance costs have decreased so dramatically over the last 10 years or so, there is very little difference in cost between a one year old and a twenty-one year old.

- Cash Accumulation - Many thoughtful parents and grandparents have invested in life insurance to provide funds for their children and grandchildren for college education or just as a cash gift. As thoughtful as this may be, every Virginia life insurance policy has fixed costs embedded to pay for the coverage itself and cover the administration costs of the policy. A better alternative may be to establish a college fund such as a 529 Plan or Coverdell account.

If you determine that the purchase of insurance for a child is important to you, ask your insurance company or agent if the child can be added to your own policy as a rider. You can generally cover as many children as you have for one low price. The children's rider may also have conversion privileges which guarantees future insurability.


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