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Life Insurance: How much do I need?

Updated on January 7, 2010

Choosing the right amount of life insurance is a daunting task. The most important thing to keep in mind about life insurance is this: the primary purpose of life insurance is to replace the income of the insured should the unthinkable happen.

The proper amount of life insurance is unique to each person's financial situation. There are literally hundreds of insurance calculators on the web (a quick Google search for "life insurance calculator" returned 4,520,000 results!), but they're only as good as the information you provide. So, figuring out just what expenses you'll need to cover is crucial.

The first question you need to answer is: Who's expenses am I covering by purchasing life insurance?

The most likely answer is your spouse and any children who are not yet grown. But in some cases, people just want to ensure that their debts or funeral expenses don't burden other people in their life.

In the case of your spouse, you should be looking to cover your own income and any expenses you leave behind. The goal here isn't really to ensure that your spouse never has to work again. This would be nice, but it can make the difference between affordable coverage and no coverage.

Here are some of the more common "big ticket" items to consider:

Living Expenses.

Determine how much money your family will need to maintain their standard of living. This includes groceries, taxes, gas and utilities, car payments, etc.... If you have a budget, then you're all set, but be sure to subtract your spouse's income. You will also want to figure out what your expenses are per year, and then multiply that out by the term (for example, 20 years).

Funeral Expenses.

Funeral expenses run, on average, from $4,000 - $10,000. This is a one-time expense.

Mortgage and Other Loan Payoffs.

The idea here is to provide enough so that your family can erase any debts you leave behind and start with a clean financial slate.

College Expenses.

Be sure to factor in sending your children to college. Again, it would be nice to provide junior a loan-free trip to a private school, but you don't want to break the bank with this insurance premium. A Good rule of thumb is to provide at least what you expect to provide assuming you don't die prematurely.

For example, if junior knows he's looking at some assistance from the bank of mom and dad but he'll have to take out loans to cover the difference, then that should be your goal with your coverage as well. The same thing goes for public vs. private school. Don't factor private school into your insurance policy if you were only going to cover public school.

Of course, this is just to get a ballpark amount. If you find an agent you're comfortable with and the difference in premiums between the amount to cover full tuition and partial tuition are small enough that you can live with it, then by all means go ahead.


Once you have a good idea of how much you think you'll need, it's always a good idea to consult an agent for their opinion. But if you've done your homework well, then the number they provide should be in the ballpark of your own.


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    • Hadley Lewis profile image

      Hadley Lewis 9 years ago from U.S.A.

      I found most agents suggest 7-10 times your annual income for life insurance.

      However, you should take into account all of your income, savings, expenses, and outstanding debt.

      One way to decide how much life insurance is right for you is to use a life insurance needs calculator like the one I found at

      You can get an accurate estimate of your life insurance needs by answering some questions using the online life insurance calculator.

    • M. Beck profile image

      M. Beck 10 years ago from Parts Unknown

      You make a good point with your analogy between taking your car to a transmission shop and asking an insurance agent how much life insurance you need. However, my point was to arm yourself with the knowledge of what you'll need before asking the agent. That way if the agent says you need a substantially larger amount than the figure you determined, move on and find another agent or at least get a second opinion. (Maybe you miscalculated?)

      As for term vs. whole life, I began to include that in my Hub but found myself veering away from the root question. In the end, I opted to focus on "How much" vs. "What Kind" as that was the question at hand.

      For the record, I happen to agree completely with your assessment of buying Term and investing the difference. I just made a content based judgment call.

      Finally, as for marrying a spouse that can support him or her self in the event of your demise, it's not always a matter of education and skills. For instance, many couples make the decision to have one of them be a stay at home parent because they believe that it is one of the most important jobs. However, stay at home parenting offers no material compensation, so this is something that should also be considered.

      Thanks for the thought provoking comments, they were much appreciated.

    • Ralph Deeds profile image

      Ralph Deeds 10 years ago from Birmingham, Michigan

      Consulting an insurance agent on how much insurance you need is like taking your car to a transmission shop because because it downshifts a little too slow.

      Otherwise, M. Beck offers pretty good advice.

      Here's some more--consider term insurance rather than whole life. You're better off with term insurance and investing the difference in a good no-load, low cost index mutual fund. The commissions on life insurance are high and the return is not as good as with a no-load, low-cost mutual fund.

      If you have whole life insurance, once the need is over, cancel the policy and put the money in a low-cost mutual fund or other investment likely to offer a better return than life insurance.

      Marry a spouse with a good education or skills to support him or herself in the event of your premature demise.

      If the choice comes down to more life insurance or maxing out your 401k, by all means max out your 401k.