How Much Life Insurance Do I Need?

Life Insurance Rules of Thumb

When you pass away, you may be leaving your family with expenses just when they’ve been hit by the loss of their loved one. What rule of thumb can help you calculate how much life insurance to buy?

Calculating Life Insurance Coverage

Methods to Manually Calculate Coverage Amount

Our rule of thumb is to replace your income: 10 to 12 times your annual salary before taxes. A person earning $75,000 per year, for example, should consider life insurance coverage of $750,000 to $900,000.

Methods to Estimate Coverage Amount

You can get a more precise estimate by using the DIME method:

  • Debt: total of credit cards, car loans, private student loans, other financial obligations
  • Income: ten times your annual earnings
  • Mortgage balance
  • Education: kids’ college tuition

Add these amounts together for an estimate of life insurance to cover your needs. If you and your partner are in a Double Income No Kids situation, you can use the even simpler DINK method. Add together

  • Half your outstanding debts
  • Final expenses, including funeral expenses.

Get Help Calculating Your Life Insurance Need

Some situations require tweaking the amount of coverage or type of life insurance you buy. If you are:

  • Single with dependents
  • Single with no dependents
  • A full-time parent or caregiver

Talk with a licensed agent to figure out how these situations might push your ideal amount of insurance up or down.


How much life insurance does the average person have?

Many people receive some amount of life insurance as a job benefit. It is usually not enough, however, and may disappear altogether when you leave that job. As soon as someone relies on you for financial support, it’s time to consider buying life insurance.

How are life insurance death benefits calculated?

For term policies, the death benefit paid out will be equal to the face amount of the policy. For whole life insurance, the death benefit will be the face amount less any outstanding loan. For other types of permanent life insurance, the ultimate death benefit will be the cash value of the policy at the time of death.

How much life insurance do you need after age 50?

Your need for life insurance changes as you approach age 50 and beyond. Your family may need less death benefit, or they may need more to pay estate taxes. Talk to an insurance professional around age 50 to make sure your plan is still solid.

What percentage of income should go to life insurance?

No rule of thumb can tell you how much to spend, but to save money you can look for term life insurance rather than other types. An independent agent can provide quotes for several companies so you can shop around.

Can you have multiple insurance policies?

Some folks find it’s easier to buy more life insurance as they grow their family or build their net worth. Unlike other coverage such as health insurance, it’s possible to own multiple insurance policies, and occasionally it makes more sense to terminate a policy and buy a new one. A qualified agent can help you decide.

Guarantees are based on the claims-paying ability of the issuing insurance company.