How Much Insurance Do You Need? Questions to Ask to Ensure You Have Enough Coverage

At the beginning of 2022, the Marshall Fire damaged or destroyed nearly 1,000 homes throughout the state of Colorado. While many families were protected with homeowners’ insurance, rising building costs and supply chain hiccups exceeded the coverage of most policies, ultimately making it more expensive for families to rebuild.

You never want to find out that you’re underinsured at a time when you actually need it. While a financial advisor can be your best resource to figure out just how much coverage you need, here are some questions to ask to help determine if you have enough life insurance, disability coverage and homeowners’ insurance.* 

Homeowners insurance

As a homeowner, it's smart to have an insurance policy in place (and it’s probably required if you have a mortgage).

How much do you need?

At the most basic level, you’ll want to have enough homeowners insurance to replace the value of your home. While there are different levels of coverage to choose from, it’s important to note that your home can sustain damage in ways that may not be covered by insurance. For example, while standard homeowners insurance policies generally cover fires and storms, if you live in a part of the country that’s prone to floods or earthquakes, you may want to consider purchasing a supplemental policy or rider to cover these types of natural disasters.

When should you review?

While an annual review of your coverage is ideal, any change that’s related to your home is reason for review. For example, if you’ve recently renovated or done an addition to your home, you may need more coverage to account for the increase in value.

Life insurance

If something were to happen to you, the last thing you’d want is for your loved ones to have to wonder how they will pay their expenses. Life insurance is a way to ensure your family is protected, and depending on the type of insurance you get, your policy may also provide value that you can use throughout your life.

How much do you need?

How do you determine how much life insurance you need? One common recommendation is to have 10 times your salary, but your actual number may be different. You’ll need to take into account factors like your age and financial situation.

If you have people who depend on you for income, you’ll want to make sure you have enough insurance to cover your family’s everyday, ongoing costs, like bills and housing. You may also decide you want to cover future financial goals, like college tuition for your kids or retirement savings for your spouse. A life insurance calculator can help you get a sense of how much you might need. 

When should you review?

While it’s recommended that you review your life insurance policy on an annual basis, there are some instances when you’ll want to revisit your coverage sooner. Events such as expanding your family, buying a house, getting a big promotion at work or starting a business will all likely increase your need for coverage.

Disability insurance

If an illness or injury prevents you from working, you’ll want to have a plan to help you replace your income. While you might think only a serious event could prevent you from working, disability is fairly common. A heart attack or a car accident, any number of relatively common conditions, including fractures or sprains, digestive issues, mental health conditions and pregnancy can prevent you from working and earning an income.

How much do you need?

Because you’re using it to replace your income, you’ll want to get as much disability insurance as you can. (Think about it: If you were insuring your home, would you only get enough to cover half of it?). Just like with life insurance, there are various factors that affect how much coverage you’ll need. This calculator can give you an idea. While you may get some coverage through your employer, it’s often only enough to cover 50 to 60 percent of your salary.

When should you review?

You’ll always want to make sure you have adequate protection in place before something happens to you. So it’s important that you review your disability insurance anytime you experience a change at work.  

The most obvious time would be anytime you switch employers. But it’s also a good idea to do it if you get a raise (because you’ll have more income to replace). Or, if you decide to start working part time or to start your own business, those kinds of changes would also affect the amount of coverage you’ll need moving forward.

*Northwestern Mutual does not offer homeowners insurance. 

Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company (NM) and its subsidiaries, including Northwestern Long Term Care Insurance Company (NLTC), Northwestern Mutual Investment Services, LLC (NMIS) (Investment Brokerage Services), a registered investment adviser, broker-dealer, and member of FINRA and SIPC, and Northwestern Mutual Wealth Management Company® (NMWMC) (Investment Advisory Services), a federal savings bank. NM and its subsidiaries are in Milwaukee, WI.

To be used with Policy Form No. ICC17.UU.WL.(0119), ICC21.UU.WL.(1121) or state equivalent. Not all policies are available in all states

Disability income insurance policies contain some contractual features and optional benefits that may not available in all states. The ability to perform the substantial and material duties of your occupation is only one of the factors that determine eligibility for disability benefits. These policies also contain exclusions, limitations and reduction of benefit provisions. Eligibility for disability income insurance, additional policy benefits and qualification for benefits is determined on a case-by-case basis. For costs and complete details of coverage, please contact a Northwestern Mutual Financial representative. 

To be used with form ICC16.TT.DI.IIB.(0916), ICC16.TT.DI.FIB.(0916), ICC16.TT.DI.CAT.(0916), ICC16.TT.NCDI.(0916), ICC16.TT.GRDI.(0916), ICC16.TT.DI.PDB.(0916), ICC16.TT.DI.PDBO.(0916) or equivalent. Not all contracts and optional benefits are available in all states.

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