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Will the life insurance rule of thumb work for you?

Experts often recommend having 5 to 10 times your income in life insurance. But the rule doesn’t fit for everyone. Find out how the rule works and how much coverage you need.

How much life insurance do I need?” is a question that’s at the forefront of most life insurance buyers minds.

Many experts recommend buying a life insurance policy that’s five to 10 times your pre-tax annual income, with a term length that lasts for at least the number of years until your children are out of college or your mortgage is paid off.

Does this rule of thumb work for everyone? Of course not. But for most, it is a good guide for the range you should consider.

To go from a wide range to the true right amount for you, let’s dive in.

Why 5 to 10 times your annual income?

For many of us, five to 10 times our annual income seems like a lot of money. If you make $50,000 a year, for instance and choose coverage at 7 times your annual income, the value of your life insurance policy would be $350,000. That’s possibly more than you have in your retirement accounts right now.

But when you dig into what that money will need to cover, it seems very reasonable.

Five to 10 times your annual income is just enough to help most families replace lost annual income for a few years while getting back on their feet – including some time off to grieve. The life insurance proceeds can help cover funeral expenses and potentially leave a small nest egg for a child’s college fund or spouse’s retirement. Or, it can help pay off large debts like a mortgage to reduce long-term living expenses for the policyholder’s family and maybe even prevent a spouse from the possible struggle to refinance as a single borrower.

These are all major costs that add up. Chances are, if you jot all those expenses down for your own unique situation, your grand total will come to somewhere in the 5-to-10-times-income range. Hence the rule of thumb.

Is employer-provided life insurance enough?

Employer-provided life insurance is a very nice benefit for those who get it, but it’s not usually enough to adequately meet the financial needs of your survivors should you die.

Typically, employer-provided life insurance coverage ranges from one to two times your annual salary. That’s not enough to cover most expenses that families have.

In addition, coverage is tied to your employment. If you quit, are fired, or have to leave your job for medical reasons, you could be left without life insurance coverage. The policy usually ends when you separate from your employer. That could be a very big concern if a medical issue leads to your job loss because a medical issue could make it more difficult – or impossible – to get private life insurance coverage.

It is a smart move to secure life insurance coverage apart from your employer while you’re healthy and young. The overall cost will be lower than it will be later in life and you get tremendous peace of mind knowing you’ve helped your family cope financially in your absence.

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Where the life insurance rule of thumb falls short

Have you ever bought a ‘one size fits all’ shirt only to feel like you’re wearing baggy pajamas or a belly shirt? That happens with every rule of thumb. Some people just won’t fit the mold.

Take a breadwinning parent who wants to replace income longer-term. If this mom or dad wants to allow the spouse to stay home with the kids, he or she will need enough insurance to fully fund an early retirement for the spouse. That can be 25 times your annual expenses, using the 4% withdrawal rate rule, or 15 to 20 times your pre-tax annual income. (Remember that life insurance proceeds usually aren’t taxed.) If this person also wants to help pay for their children’s college expenses, even more coverage might be needed.

The other side of the coin is stay-at-home parents. Five to 10 times zero is still zero, right? But stay-at-home parents add significant value to a household, such as childcare, that should be financially protected. For these individuals, coverage needs should be calculated based on the children’s ages and how much childcare and other expenses would cost until adulthood.

The rule of thumb can also fall short for people with significant debts, additional dependents such as aging parents or siblings that need long-term care, or other unique circumstances.

That’s why it’s worth taking the time to calculate your personal needs. (And it’s easy to do.)

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

Calculate your needs

Calculate your unique life insurance needs

While rules of thumb can be helpful, the best answer for how much insurance you need varies from person to person.

To calculate your own needs, it is helpful to understand what you want your life insurance policy to cover. Life insurance is meant to help your loved ones avoid financial strain in the already stressful time of losing a loved one. Your policy could help cover:

  • Lost income that covers day-to-day expenses for your family
  • A mortgage, student loan, or other debt
  • Child care
  • Future college expenses
  • Burial, estate taxes and expenses related to your death
  • An inheritance through a tax-free death benefit

And the list goes on.

Luckily, you can confidently estimate the coverage you need with an online life insurance calculator and skip scribbling on the back of your napkin. Discover whether five to 10 times your annual income in life insurance is enough, or too much, today and get the comfort of knowing you’ve helped financially protect your family with the right amount of coverage.

It’s not just easier life insurance, it’s an easier life.

Learn about the perks that come with being a Haven Term policyholder.

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Chelsea Brennan is the founder of Smart Money Mamas, a personal finance blog that focuses on family finance, investing and reducing money stress. Chelsea is an ex-hedge fund investor whose work has appeared in a wide array of publications, including Forbes, Business Insider and more.

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About Adam Weinberg

Adam Weinberg is the Brand Director for Haven Life, where he’s working hard to make life insurance easy. Adam is a creative problem solver who uses unique brand moments to create meaningful customer experiences.  Adam has more than a decade of diverse editorial, marketing, and branding experience, including work on several award-winning campaigns for various digital media companies.

Read more by Adam Weinberg

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:

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