Allianz Guru Series by Henry Yang: A cynic's guide to how much life insurance do you really need

How much life insurance do I really need?” is a question we should be asking ourselves to prepare our family’s finances with or without us along the way.

A quick Google search would give us two opposing spectrums of answers from simple to complicated. Simple answers would say “Get insurance coverage that's 6 to 10 times of your salary”. Too generic and doesn’t take into account your personal circumstances. The complicated ones would ask you a lot of input that it feels like you’re being quizzed.

It ticks me off that they just throw out numbers without really explaining why.

Let me break it down for you. To simplify, we can just group it into two categories: those with dependents, and those without. 


Life insurance for those with dependents

To understand the role of life insurance for those with dependents, let’s review the case of Dick and Bruce. Yes, they are popularly known as Robin and Batman. Both their parents died tragically, leaving them alone in this world.

Robin was left totally alone with no relatives, and I assume no inheritance. He was adopted by Bruce Wayne or else he would have gone to a foster home. If his parents had life insurance, that coverage would have been his safety net. It would have been substitute for an inheritance or money that will help him continue his current life even without his parents.

Bruce on the other hand, inherited a lot --  a mansion, Wayne Enterprises, and who knows what else. Being wealthy, there’s no need for the Waynes to have a safety net. But guess what, life insurance plays a different role here! If Bruce’s parents didn’t purchase life insurance, a huge portion of their estate would be reduced by estate taxes. Life insurance for wealthy guys/gals with dependents is for an efficient wealth transfer.

Wait, where is this story going? How much do we need as life insurance if we have dependents?

For safety net purposes, how much will it take for your family to move on to a new income source? This amount will be significantly higher if your dependents are still babies, and lower if your kids are near graduation or about to enter the workforce. This is why those “how much life insurance you need” calculators have so many forms. You can use any of them now that you understand the concept behind them, or you can do it old school and calculate how much your family is spending on a monthly basis, how much education will cost, etc.

For wealth transfer purposes, I would say it depends on how much taxes you are willing to pay to transfer your estate.

Hint: most would want zero or minimal. There are other strategies aside from insurance here such as gifting and buying properties named to your kids, but these are out of my expertise and experience – best to consult someone with estate transfer specialty. 

Life insurance for those without dependents (or heirs)

I have to be honest with you. If you don’t have dependents, you don’t need life insurance. Maybe a little, just to cover your funeral. However, there are loved ones that will be sad when you’re gone. Think of life insurance as your final gift as you say goodbye. 

In a nutshell

There you have it. Life insurance plays different roles. For most of us, it would be our family’s safety net to prevent our remaining family to be treated like dirt like Princess Sarah or Cinderella (I didn’t watch the Amazon Prime one, just wanted to be current in my references). For the wealthy ones, it’s to protect their riches from erosion via taxes. Lastly for those without dependents, there’s really no need unless there are special people in your lives that you want to leave something to remember you by. 


IMPORTANT NOTICE: This document is for general information purposes only. It is not an investment advice and does not constitute any offer, or a solicitation to buy or sell any investment product. Further, any opinion stated by the author does not necessarily reflect the position of Allianz PNB Life.


Head of Investments
Henry Yang is a Chartered Financial Analyst (CFA) holder and a graduate of the University of the Philippines with a degree in Electrical Engineering. He spent the initial years of his career in building maintenance, electrical design and installation of construction projects, and teaching engineering. Later, he pursued his Master's in Business Management from the University of the Philippines - Los Baños as well as held investment-related roles at a top local bank, a U.S.-based investment company, and a global insurance competitor. Currently, he serves as the Head of Investments at Allianz PNB Life Insurance, Inc.