How much life insurance do I need?

Your life insurance coverage should be about 10 to 15 times your income.

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Life insurance is meant to financially support the people who depend on you—your beneficiaries—but it’s not useful if you don’t get enough coverage. Ideally, the money your family receives is enough to replace your lost income and cover their expenses, like mortgage payments and bills. Getting a high enough death benefit is the best way to ensure your beneficiaries aren’t strapped for cash if you die. 

Not sure how much life insurance you need? We’ve got you covered. 

The life insurance rule of thumb

Figuring out how much life insurance you need is pretty easy: just calculate 10 to 15 times your income. This is the best way to account for inflation and household expenses, and to ensure that your beneficiaries have enough money for the long term. 

But how much, exactly? 

To figure it out, tally up your financial obligations. From that number, subtract the amount you have in existing life insurance policies and liquid assets. 

You can also use the DIME method to find the exact sweet spot. Using this method, you tally up the following:

  • Outstanding debts

  • Your income multiplied by the number of years your family will depend on it

  • The amount left on your mortgage 

  • The cost of your children’s education

The sum of these factors is the exact amount of life insurance you should buy, but you should also be mindful of how your life insurance needs might change in the future. You should revisit your life insurance policy during every major life event, because a new financial obligation means you might need more life insurance. Factors that could change how much life insurance you need in the future include having kids, getting married, or taking on more debt.

Another simple calculation method is the 1% rule: Look for a policy with coverage that costs about 1% of your annual income. For a family with an annual household income of $67,251 (the current U.S. average), [1] 1% would equal $672.51 per year or about $56.04 per month in premiums — less than the average electricity bill. [2]

“It’s important to make sure that the policy you are purchasing is one that you can afford even on your worst day, month, or year,” says Patrick Hanzel, certified financial planner and Advanced Planning Team Lead at Policygenius. To meet that goal, “most advisors recommend a premium of about 1% of your household income.”

You don’t need to spend precisely 1% of your income on a policy — you may prefer to spend more or less depending on your coverage needs — but the guideline can be a helpful tool for thinking about how premiums will fit into your budget.

“From an affordability standpoint, 1% is an amount that most people should have available to spend without hindering their current lifestyle,” says Jake Herskovits, Life Insurance Team Lead at Policygenius.

Other factors that affect how much life insurance you need

You’ll want to make sure the amount of coverage you’re getting  accounts for the following: 

  • Dependents: Raising a child or caring for an aging parent is very expensive and you may need to increase your policy amount by several hundred thousand dollars.

  • College expenses: According to the College Board [3] attending a public four-year state university costs $42,240. And this cost will only increase with time — in the last decade, the average tuition at a four-year private college went up by about $19,000.

  • End-of-life expenses: The average cost of a funeral is more than $7,000, once you factor in the funeral home and burial costs, like the casket.

  • Everyday expenses: Make sure your coverage accounts for groceries, bills, mortgage or rent, and even vacations. 

  • Liquid assets: If you have a substantial amount of money in other liquid assets, such as a 529 college plan, that will reduce how much life insurance you need.

  • Existing life insurance policies: If you already have a life insurance policy, you should subtract that coverage from your calculations so you don’t overpay for your policy. 

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What if I don’t get enough coverage?

Not getting a face amount or term length that matches your life insurance needs can jeopardize your family’s financial health. A recent study found that 44% of people would experience a financial impact within six months if their family’s primary wage earner passed away, and 28% would see that impact within a month. Without the right coverage amount to replace your income, your family may not be able to keep up with everyday expenses, plan for the future, or pay for your final expenses.

Likewise, there is such a thing as getting too much life insurance. If you’re paying for extra coverage that you don’t need, you’re not using that money efficiently — you’re missing out on potential earnings on investments, funding your retirement, and building savings. And by getting more coverage than you need, you might also be spending more than you can afford on premiums. If you aren’t able to pay for your policy down the road, your policy will get canceled. 

Next steps for buying life insurance

Now that you’ve calculated how much life insurance you need, you’re ready to shop around and find the best life insurance companies. Working with a Policygenius agent (for free) is the best way to get the right amount of coverage at the most competitive price. 

→ Learn more about how to buy life insurance

Frequently asked questions

How much life insurance should I buy?

Experts recommend that you get life insurance coverage that is 10 to 15 times your income. This ensures you’re getting enough coverage to financially support your family for the long term.

How do you determine how much life insurance you need?

Tally up your financial obligations and subtract your existing life insurance policies and liquid assets, such as your savings accounts.

When should I get life insurance?

Even if you don’t have an immediate need for life insurance, you should get coverage as soon as possible. The cost of life insurance increases as you age and your health worsens, so purchasing a policy while you're younger is the best way to lock in more coverage for less.

What does life insurance cover?

Your beneficiaries can use life insurance money for virtually any expense. Typically it is used to cover funeral costs, college tuition, mortgage payments, and everyday bills and expenses.