How Much Life Insurance Do I Need? (2024)

If you’re buying life insurance, one of your first questions is: How much life insurance do I need?

There are multiple ways to calculate the right life insurance coverage amount, but not all methods are optimal.

How Much Life Insurance Do You Need?

Your savings, debts, income and family situation all play roles in figuring out how much life insurance you need.

You want a death benefit amount that will provide funds to cover the items your family will need money for. For instance, if you want life insurance to replace your income if you were to die, you need a policy with a much higher death benefit than if you want a policy to simply pay for your final expenses and burial.

There are multiple formulas to figure out potential life insurance needs, including multiplying your income by 10 and the DIME (debt, income, mortgage and education) method. These methods don’t offer a full financial picture, though.

Another way to figure out your life insurance needs is to use a life insurance calculator.

Calculate How Much Life Insurance You Need

Here’s an easy-to-use calculator to help you determine how much life insurance you need.

Manually Calculate How Much Life Insurance You Need

You can also determine your life insurance need with this basic equation:

Add up the financial obligations you want to cover.
Subtract existing assets that can be used toward bills
= Your life insurance need

Here’s what you might include in financial obligations to cover:

• Income replacement. Multiply the salary you want to replace for the number of years you want to replace it. You want this income replacement to cover current and future expenses.
• A mortgage. You can include the balance of a mortgage so your family can stay in their home without fear of losing it. If income replacement (above) would already cover mortgage payments and other expenses, no need to add more mortgage money.
• Other large debts. Would your family struggle with other large debts if you passed away unexpectedly? If so, add those amounts to the total.
• Children’s college tuition. Add tuition money to ensure your children can pay for college if you were no longer around. Here’s what you could include in “existing assets that can be used toward bills”:
• Existing life insurance. Subtract any other life insurance that you already have. Be careful about relying on supplemental life insurance from work though—it doesn’t go with you if you leave a job, so you can’t be sure you’ll have it later on.
• Savings. Subtract any savings your family would use to pay expenses. You can include retirement savings such as a 401(k) plan, or leave it out of your analysis if your beneficiaries want to preserve that money for retirement years.
• College 529 savings. If you have a 529 account with money in it for your children, you can subtract it from your life insurance needs.
• Funeral expenses. Many people want life insurance to cover funeral and final expenses. If this cost isn’t part of a larger policy, some people buy burial insurance.

Other Methods for Calculating Life Insurance Needs

You may run across other methods for calculating how much life insurance you need. These usually include:

Multiply Your Income by 10

Or by 5. Or by 17. This rule of thumb is hard to pin down. We’ve seen many numbers attached to it. And this method likely won’t help you pin down an appropriate amount of life insurance. It’s better to look at your total needs and subtract the assets your family could use if you pass away.

Multiple Your Income By 10, and Add $100,000 per Child for College Expenses

If you want your life insurance policy to help pay for your child’s college tuition and other related expenses, multiplying your income by 10 may not be enough. For instance, if you make $90,000 a year and have two children, your total life insurance need would be $1.1 million with this method.

This equation may offer a simple strategy to determine need, but doesn’t account for other expenses, assets or unique situations. A life insurance calculator will offer you a more accurate representation of your needs.

The DIME Method

DIME stands for debt, income, mortgage and education. The method has you add up these amounts:

• Debt. How much debt would you leave to other people? This could include credit card debt and student loans that aren’t forgiven at death.
• Income. Multiply your income by the number of years you want to provide income replacement for your family. Some sites advise using the number of years until your youngest child turns 18, but we all know that kids often need financial help longer than that.
• Mortgage. Add your mortgage balance to your running total.
• Education. Add an amount that covers tuition, room and board for each of your children who will go to college. Private four-year college costs an average of about $29,000 a year for tuition, fees and room and board, according to the U.S. Department of Education.The DIME method is a good start for calculating a life insurance need, but it ignores existing financial resources that your family might tap for expenses. By itself, it could leave you over-insured.

Factors to Consider When Buying Life Insurance

You may need more life insurance than you think. Depending on many other factors in your financial plan, your insurance needs change, which is why going only by broad rules of thumb can lead to being significantly under or over insured.

	Age Different ages have different insurance needs. For example, if you just started a family and purchased a home, your life insurance needs are likely different than if you just retired, your kids are grown and you’ve paid off your mortgage.
	Burial Costs If you intend to be cremated, your end-of-life expenses are likely less than someone with a burial wish.
	Child Care Costs Child care can put a strain on your wallet. Don’t forget to factor in those costs when buying life insurance, because a surviving parent may need funds for child care.
	Debt The more debt you have that will be passed along to others, the more life insurance you need to cover those debts.
	Family Situation How many kids you have, their ages and what you hope to leave them all play into your life insurance calculation. Someone with one child who is 14 needs less life insurance than someone with three children, all under the age of seven.
	Financial Goals Your financial goals will impact the amount of life insurance coverage you need. For example, if you plan to fund your kids’ college education, your life insurance coverage amount needs to reflect that.
	Life Insurance Riders Life insurance riders let you customize a policy with additional features or coverage. The available riders will vary by company and policy.
	Savings If you have a lot of savings and valuable assets, you may need less life insurance than someone who does not.
	Types of Coverage The two overarching types of life insurance are term life and permanent life. You’ll need to decide if you want a term life policy, which is lower cost, or permanent life, which can last for the duration of your life. Permanent life (which has multiple types including whole life and universal life) policies have a cash value component that you may be able tap into while you’re alive.

See Also

How much life insurance for my children should I buy?Dave Ramsey’s Teaching on Life InsuranceHow much cash is a $100,000 life insurance policy worth?Naming a Child as a Life Insurance Beneficiary – Policygenius

Why Do People Buy Life Insurance?

Most people own life insurance because they want to leave enough money for beneficiaries to pay final expenses, according to LIMRA, an industry trade organization.

Gender and Generation Gaps for Life Insurance

There is a substantial gender gap in life insurance ownership. While 47 million men need life insurance coverage, 56 million women need coverage, according to the 2024 Insurance Barometer Study from LIMRA and Life Happens.

There’s not only a gender gap in life insurance, but the study also found that younger generations especially need life insurance.

Life Insurance Needs by Generation

Factoring In Workplace Life Insurance

Many employers offer group life insurance to employees. But, since you may leave your employer at some point, your life insurance should not be wholly tied to them. Purchasing at least some level of life insurance individually ensures you’ll have something in place if you lose your job or need to quit for some reason.

While some employer policies have a portability feature that allows you to take the coverage with you when leaving the job, you may end up getting repriced. If you are much older or have had a major health event since the insurance began, the premium could significantly increase for the same amount of insurance.

Group life insurance can often work well in conjunction with an individual policy to create an insurance ladder. Let’s look at the following example:

• Income: $100,000
• Life insurance need: $1,000,000
• Existing individual term life insurance: $500,000
• Employer provided insurance: 1x salary (in this case, $100,000)

Between the life insurance need and existing insurance, there’s a gap of $400,000. While having an individual policy for that amount is ideal, it’s often far easier to sign up via your employer, so many people do so. By signing up for 4x salary ($400,000), this person now has their full insurance needs met (assuming they don’t lose the workplace coverage).

If insurance needs decline over time, you can adjust their workplace life insurance downwards each year.

Life Insurance Needs Frequently Asked Questions