The right amount of life insurance is the money your family would need if your income stopped. A simple worksheet gets you close.
Key facts
- Rules of thumb, like a multiple of your salary, are a starting point, not an answer.
- Add up debts, years of income to replace and future costs such as education.
- Subtract savings and existing coverage, including any workplace policy.
- Review the amount after big life changes, like a new child or a new home.
Life insurance replaces what your income or work provides for the people who depend on you. Working out the amount takes a few simple steps.
A simple worksheet
| Item | What to include |
|---|---|
| Debts | Mortgage, car loans, credit cards, personal loans |
| Income replacement | Your yearly income multiplied by the years your family would need it |
| Future costs | Childcare, education, care for a dependent |
| Final expenses | Funeral and end-of-life costs |
| Minus savings | Emergency fund, investments you’d want used |
| Minus existing coverage | Workplace or other policies |
The total is a reasonable estimate of the death benefit you’d want.
A worked example
A parent earning $60,000 wants to replace income for 15 years: $900,000. Add a $200,000 mortgage and $50,000 for education, then subtract $40,000 in savings and a $60,000 workplace policy. The estimate is $1,050,000. Figures are illustrative; your numbers will differ.
Smart tip
Income replacement doesn’t have to be 100%. Your family’s expenses may fall without you, and Social Security survivor benefits may help, so many people choose a percentage of income.
Matching coverage to time
Needs often shrink over time as debts are paid and children become independent. That’s one reason many people choose term life insurance, sometimes with policies of different lengths.
Check this
Medical exams, health history and lifestyle affect what you’ll pay. Applying while young and healthy usually means lower premiums.
Revisiting the number
Review your coverage after marriage, a new child, a home purchase or a big change in income. Make sure your beneficiary designations are up to date at the same time.
Questions we hear
Is workplace life insurance enough?
Often not. Group coverage is frequently a small multiple of salary and may end if you leave the job.
Do stay-at-home parents need life insurance?
Often, yes. Replacing childcare and household work can be expensive, even without a paycheck to replace.
Can I lower my coverage later?
Many policies let you reduce coverage. Increasing it later usually means applying again, possibly at a higher price.
This guide is general information, not insurance or legal advice. Coverage, prices and rules vary by insurer and by state, so read your policy documents and check with your insurer, a licensed agent or your state’s department of insurance before you decide.