How much life insurance do I need?

“Buy life insurance” sounds simple enough, and it can be thanks to digital services. But it’s the shopping process that can get a little confusing.

What type of coverage do you need? Amounts like $250,000, $500,000, and one million dollars can all sound pretty solid — why not choose the least expensive premium option? What about the “five to 10 times your income” rule of thumb? Is it right for you?

The answer is: it depends. Here are seven questions to ask yourself to figure out the right amount of coverage for your needs.

Do I really need life insurance?

First, understand if you really need life insurance. It’s common to purchase a policy once you’re married, have a child, or you buy a home, but securing coverage makes sense in other situations, too. Ultimately, it’s about whether or not you have people in your life who depend on you financially. This could be parents who cosigned your private student loans, a sibling who you help financially support, a grandparent who lives with you, a spouse and children who depend on you. Your life insurance policy acts as their financial safety net.

If you’re single with no debt, then you might not need a policy. You might opt to build an emergency fund instead.

Is the 5-to-10-times-your-salary rule for life insurance coverage accurate?

You may have heard that a good rule of thumb in estimating policy needs is to take your salary and multiply it by at least five and up to ten. Why the wide range? That depends on what you’re anticipating a life insurance policy payout to cover. For example, if you have children, you may buy more coverage with the idea that a policy payout could help cover the cost of college tuition.

While 5-to-10 is a good rule of thumb, each family’s life insurance needs are different. If you have more substantial savings and assets, perhaps a lower face amount is right for you. On the flip side, if you have several debts you are paying off, then maybe you should aim for the higher end of that range.

Fortunately, a life insurance calculator can factor in the right financial information about you and your family to provide a more personalized recommendation.

Do debts affect your life insurance needs?

Yes, debts affect your life insurance needs. Your debts may not be forgiven when you die. If you have a mortgage, credit card debt, or privately funded student loans, those debts must be settled by your estate or cosigner, and in some cases, your spouse. Death is hard enough. No one wants to leave their loved ones mourning and financially struggling.

When filling out a life insurance needs calculator, be sure to include all your debts so they will be factored into your policy recommendation. For example, factoring in the remainder of your mortgage principal into your coverage needs will help ensure that your beneficiaries will have a life insurance payout large enough to help pay off the house or afford the monthly note.

Life insurance needs aren't one-size-fits-all.

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How do you determine how much life insurance you need?

Is a larger life insurance policy better than a smaller one? Not necessarily. The larger a life insurance policy, the more expensive the premium payments will be, which is why it’s important to choose a policy that adequately covers your needs but isn’t so large it’s a hardship on your budget now. There is no wrong amount of coverage, but the best way to determine how much life insurance you need is to consider how the policy would likely be used.

Once a policy payout is paid to a beneficiary, the money is theirs to do with what they like. The dispersal is usually tax-free. A beneficiary could use the money towards funeral expenses, large debts, attorney fees, the mortgage, the car loan, other monthly payments, or daily expenses. They may also use it to help cover the cost of a child’s education, give it to charity, or invest it. In short, there’s no wrong way to use a life insurance policy payout.

That said, talking with your intended beneficiary about how you hope the money would be used can help you settle on a policy amount you’re comfortable with.

Life insurance through your employer and how it affects the amount of coverage you need

A group life insurance policy through work is a valuable employee benefit, but if you have a real need for coverage, the amount provided for free is usually not enough. Many employer-sponsored plans are limited to one or two times your annual salary – far less than the amount of coverage most experts recommend. In addition, a life insurance policy offered as an employee benefit usually terminates once you separate from your employer. An individual term life insurance policy is independent of your employment status.

If you have named the same beneficiary on both an employer-provided life insurance policy and a personal term insurance policy, your beneficiary would get both payouts if you were to die, which could be helpful to them as they navigate life without you.

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Do both my spouse and I need life insurance?

As you’re researching life insurance, you may wonder if you and your spouse should both get a policy. The answer is usually yes. Even if one spouse doesn’t work, think of what that person contributes to the family, including childcare and household maintenance, and the expense to hire someone to provide those services if he or she were to die. You and your spouse may also have separate financial obligations. For example, does one spouse hope to financially assist his/her parents now or in the future? That info should be considered when evaluating the best policy for both of you.

Some, but not all, spouses carry the same coverage. Coverage levels depend on your incomes, financial obligations, and the premiums you can afford. A conversation about your present and future financial obligations is part of a smart plan, and it’s a valuable step towards choosing the best policy for each of you. Hey, it’s definitely a different Friday night date idea, right?

Will I need to change the amount of coverage later on?

If it has guaranteed level premiums, your term life insurance policy rate is locked into place for the length of the term. Over time, you may find that your needs change. Maybe you’ve paid off your house or have a robust college savings fund for your children. It’s usually pretty simple to change the amount of coverage you have as your needs change. At Haven Life, for example, you can lower your life insurance policy any time to help save on premiums.

If your financial needs are greater – maybe you’ve upgraded to a more expensive home and would feel more comfortable with a larger policy – you may need to look at purchasing more coverage. Usually, that requires a new application and medical underwriting.

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Buying a policy now may save you money

It can be tough to figure out the right amount of life insurance. But it’s also important to remember that term life insurance tends to be the least expensive when you’re young and healthy. Doing an analysis of how your beneficiary would likely use your life insurance policy payout if you were to die can be a great first step, but if you’re single or just beginning to consider a life insurance policy, you don’t need to go deep into what-if hypotheticals about your future spouse or children.

It’s smart to begin the policy purchasing process sooner rather than later, to lock in a term rate that’s affordable for you now, and for the length of your term.

Anna Davies is a writer at Haven Life. She has written for The New York Times, New York Magazine, Refinery29, Glamour, Elle, and others, and has published 13 young adult novels. She lives in Jersey City, NJ, with her family and loves traveling, running, and trying to find the best cold brew coffee in town.

Haven Term is a Term Life Insurance Policy (ICC17DTC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111 and offered exclusively through Haven Life Insurance Agency, LLC. Policy and rider form numbers and features may vary by state and may not be available in all states. In New York, Haven Term is DTC-NY 1017. Our Agency license number in California is OK71922 and in Arkansas, 100139527.

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