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How much life insurance do I really need?

Deciding how much term life insurance you need is part art, part science. Here's an easy way to calculate the coverage amount that’s right for you.

Buying life insurance: actually simple. (Especially online.) Shopping for life insurance: Not so simple, given how many insurance companies there are and how many options there are for coverage.

One place to start is asking yourself a simple question: How much life insurance do I need? You’ll often see term life insurance policies worth amounts like $250,000, $500,000, $1 million and more. But how do you know which life insurance policy makes sense for you and your family?

That answer to what is the right amount of coverage is: It depends, but there’s no need to overcomplicate it.

Your goal is to buy enough life insurance coverage to provide a robust financial safety net for your family. You also want to avoid getting too much coverage because then you’re paying an excess in premiums that could be used for an emergency fund or a family vacation. With life insurance, you’re aiming to help replace your income in the event that something happens to you as well as take care of some big-ticket items like your mortgage.

Here, then, are seven questions to ask yourself to figure out how much life insurance coverage you need:

Do I really need to buy life insurance?

It’s a fair question. It’s common to purchase a life insurance policy once you get married, have a child, or buy a home—in other words, once you have dependents who, well, depend on your annual income. In fact, those dependents are going to be a big factor in how much life insurance you need.

But what if none of those things apply to you? Then you might not need to buy life insurance yet.

However, securing coverage makes sense in other situations, too. If you’re young and healthy, a medically underwritten term policy can lock in an affordable rate for your coverage duration, whether that be 10, 15, 20 or 30 years. Paying a low premium is a nice piece of security, no matter where you are in life. For example, a term life insurance quote for a healthy 30-year-old woman buying a 30-year, $500,000 term life insurance policy is about $30 per month.

Ultimately the need for life insurance coverage boils down to whether 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. The beneficiaries can use the policy’s death benefit for a number of financial needs – to help pay for funeral expenses, meet day-to-day living expenses or plan for the future, to name a few. Your policy can act as a financial safety net for your beneficiaries to use the life insurance proceeds as they see fit.

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

Calculate your needs

How do I calculate how much life insurance I need?

There are a couple ways to calculate how much life insurance you need. First, you may have come across the 5-to-10-times-your-salary life insurance rule of thumb in your research. What is that? Essentially, you take your annual income and multiply it by at least five and up to ten. The result is the amount of life insurance coverage you need. Another (admittedly easier) option is to use an online life insurance calculator to easily understand your needs.

The life insurance rule of thumb, of course, produces a wide-ranging result. Which end of the spectrum is right for you will depend on what you anticipate your beneficiaries will need if you are no longer there. For example, if you have children, you may buy more coverage with the idea that a policy payout could help pay the cost of college tuition.

While 5-to-10 is a good rule of thumb, each family’s life insurance coverage 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. Keep in mind that how much life insurance coverage you buy will affect how high (or low) your insurance premiums will be.

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

What if I have debt?

Commonly held debts include a mortgage, credit card debt, or privately funded student loans. These debts may not be forgiven when you die, in which case they 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.

All of this is to say that yes, debts affect your life insurance needs. 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.

What else should I consider when determining how much life insurance I need?

In some areas of life, bigger is better. Life insurance is not necessarily one of those areas. 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 that it’s a hardship on your budget now. There is no wrong amount of coverage because some coverage is better than nothing. But,  the best way to determine how much life insurance you may 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 as they like. The dispersal, a lump sum, is usually tax-free. A beneficiary could use the money toward financial obligations such as final expenses, large debts, attorney fees, the mortgage, the car loan, other monthly payments, or daily costs. A policy payout could be used to help pay for the cost of a child’s education, given to charity or invested. 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.

What if I have life insurance through my employer?

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 income – 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.

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 yes. Even if one spouse doesn’t work outside the home, 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 life insurance 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 toward choosing the best policy for each of you. Hey, it’s definitely a different Friday night date idea, right?

What if 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 lower 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 life insurance premiums.

If your financial needs are greater, you may need to look at purchasing more coverage. Maybe you’ve upgraded to a more expensive home and would feel more comfortable with a larger policy. Maybe your income increased. (Hey, it’s nice to dream, right?) Usually, that requires a new application and medical underwriting.

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Armed with an online life insurance calculator and after asking yourself the right questions, it can be simple to figure out the right amount of life insurance for you, your family and your budget. By purchasing while you’re relatively young and healthy, you can lock in a term rate that’s affordable for you now, and for the length of your term.

Life insurance is more affordable than you think

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About Louis Wilson

Louis Wilson is a freelance writer whose work has appeared in a wide array of publications, both online and in print. He often writes about travel, sports, popular culture, men’s fashion and grooming, and more. He lives in Austin, Texas, where he has developed an unbridled passion for breakfast tacos, with his wife and two children.

Read more by Louis Wilson

Our editorial policy

Haven Life is a customer-centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

Our editorial policy

Haven Life is a customer centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

Our content is created for educational purposes only. Haven Life does not endorse the companies, products, services or strategies discussed here, but we hope they can make your life a little less hard if they are a fit for your situation.

Haven Life is not authorized to give tax, legal or investment advice. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Individuals are encouraged to seed advice from their own tax or legal counsel.

Our disclosures

Haven Term is a Term Life Insurance Policy (DTC and ICC17DTC in certain states, including NC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001 and offered exclusively through Haven Life Insurance Agency, LLC. In NY, Haven Term is DTC-NY 1017. In CA, Haven Term is DTC-CA 042017. Haven Term Simplified is a Simplified Issue Term Life Insurance Policy (ICC19PCM-SI 0819 in certain states, including NC) issued by the C.M. Life Insurance Company, Enfield, CT 06082. Policy and rider form numbers and features may vary by state and may not be available in all states. Our Agency license number in California is OK71922 and in Arkansas 100139527.

MassMutual is rated by A.M. Best Company as A++ (Superior; Top category of 15). The rating is as of Aril 1, 2020 and is subject to change. MassMutual has received different ratings from other rating agencies.

Haven Life Plus (Plus) is the marketing name for the Plus rider, which is included as part of the Haven Term policy and offers access to additional services and benefits at no cost or at a discount. The rider is not available in every state and is subject to change at any time. Neither Haven Life nor MassMutual are responsible for the provision of the benefits and services made accessible under the Plus Rider, which are provided by third party vendors (partners). For more information about Haven Life Plus, please visit: https://havenlife.com/plus.html

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