How much life insurance do you need?
Quick rules give you a ballpark, but adding up what your family would actually need gives a better number. Here's a simple worksheet you can fill in on paper in about 15 minutes.
Published by Marcus L. Barber, former licensed Maryland property and casualty producer (2010–2012)Reviewed by Marcus L. Barber on Updated This guide is general education, not advice for your situation. We're an independent publisher, not an insurer or agent, and we may earn a commission from partner links. How we make money.
Key points
- A common rule of thumb is five to eight times your annual income.
- A needs-based estimate adds income replacement, debts, final expenses and future goals.
- Subtract savings, existing life insurance and survivor benefits.
- Revisit the number after big life changes like a new child or a new home.
Rules of thumb
The NAIC notes that some experts suggest buying five to eight times your current income. It's a fast starting point, but it ignores whether you have a mortgage, young children, savings, or a spouse with their own income. That's why the NAIC and the Insurance Information Institute both point people toward working out their actual needs.
The needs-based method
The idea is simple: add up what your family would need, then subtract what they'd already have.
What they'd need
- Income replacement: the income your household would lose, for as many years as people rely on it.
- Debts: the mortgage balance and other loans you'd want paid off.
- Final expenses: funeral and related costs. The Insurance Information Institute suggests planning for at least $15,000.
- Future goals: such as college costs for children.
- Lost benefits: health insurance or other benefits that came through your job.
What they'd already have
- Savings and investments they could use.
- Existing life insurance, including coverage through work.
- Social Security survivor benefits, if your family would qualify.
Worksheet
| Line | Item | Amount |
|---|---|---|
| A | Annual income to replace × years needed | $ |
| B | Mortgage balance and other debts | $ |
| C | Final expenses (at least $15,000) | $ |
| D | College and other future goals | $ |
| Total needs (A + B + C + D) | $ | |
| E | Savings and investments available | $ |
| F | Existing life insurance | $ |
| Coverage to buy (total needs − E − F) | $ |
Expected survivor benefits reduce how much income you need to replace, so you can lower line A by what Social Security would pay. Round the final number up to a standard coverage amount.
Worked example
A 35-year-old parent earning $60,000 wants to cover their family until their youngest child turns 22, in 18 years.
- Income to replace: $45,000 a year (after accounting for expected survivor benefits) × 18 years = $810,000
- Mortgage and other debts: $220,000
- Final expenses: $15,000
- College fund: $80,000
- Total needs: $1,125,000
- Minus savings ($40,000) and workplace life insurance ($60,000): about $1,025,000
This simple version doesn't account for inflation or what the payout could earn if invested, which roughly offset each other. Their rule-of-thumb figure would have been $300,000 to $480,000, far less than the family's real needs. A 20-year term policy for around $1 million would be one way to cover them.
This example uses made-up numbers to show the method. Your figures will differ.
Choosing a term length
If you buy term insurance, match the length to your longest major obligation: until your youngest child is independent, or until the mortgage is paid off. If needs will shrink over time, some people "ladder" two smaller policies with different terms instead of one large one. See term vs. whole life.
When to revisit
Recalculate after marriage or divorce, the birth or adoption of a child, buying a home, a big change in income, or when debts are paid off. Update your beneficiaries at the same time.
How this guide was made
We drafted this guide with help from AI writing tools, working from the sources listed below. Every fact was checked against those sources, and Marcus L. Barber read and reviewed the full page, including its title, description and FAQs, before it was published. AI tools don't decide what we publish; a person does. Our editorial standards.
Sources
- Life insurance, National Association of Insurance Commissioners
- How much life insurance do I need?, Insurance Information Institute
- What are the principal types of life insurance?, Insurance Information Institute