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How much life insurance do I need?

A good rule of thumb is getting life insurance coverage that's 10-15 times your income, but it depends on your individual financial circumstances.

Elissa Amanda Shih author photo

Elissa Suh & Amanda Shih

Published July 15, 2020

KEY TAKEAWAYS

  • Experts suggest using 10-15 times your income as a baseline coverage amount

  • Your life insurance should be able to cover your salary, dependents, debts, and regular expenses

  • A policy costs less than most people think, and you can save money by buying when you’re younger

For many people, buying a life insurance policy is a smart move that ensures financial coverage for their loved ones. How much life insurance you need will vary based on personal and financial circumstances, but essentially you need enough to replace your income and cover your dependents' expenses, including future ones. Nicholas Mancuso, the senior operations manager of Policygenius' advanced planning team, suggests people aim for 10-15 times their income.

Policygenius' free coverage calculator can help you figure out how much life insurance you need, and how long your coverage should last.

Read on for considerations you should take when you’re shopping for life insurance coverage and an example of how to calculate coverage for an average American household.

IN THIS ARTICLE

What is the ideal amount of life insurance coverage?

Term life insurance is available between $20,000 and $10 million. According to Policygenius data, people in their 30s and 40s most commonly purchase policies that provide between $250,000 and $1 million in coverage. Keep in mind, these coverage amounts are how much people actually elect to buy, but they don’t necessarily reflect how much coverage is ideal.

Follow these steps to find out how much life insurance coverage you need:

  • Tally up your resources (after-tax income, liquid assets)
  • Expenses + debt = financial obligation
  • Financial obligation - liquid assets = coverage gap
  • Coverage gap = how much life insurance you should get

Follow the example below for more details.

Resources

Imagine a fairly typical American family: a four-person household comprising two parents and two kids, a three-year old and five-year old. Assume you earn $65,000 a year and have assets totaling an additional $20,000. These are your resources.

ResourcesAmount
Income (before tax)$65,000
Income (after tax)$50,000
Assets$20,000

What financial obligations do you need covered?

Adequate life insurance coverage involves taking stock of everything you pay for or would need to pay for in the future. If you aren't sure where to start, consider the following.

Expenses

Take into account your expenses — including the cost of raising children — and your debt.

The USDA estimated the cost of raising a child was nearly $13,000 annually for a child born in 2015. Adjusting for inflation, the figures below are based on a $15,000 cost per year for each child until they turn 18.

ExpensesAmount
Five years of support ($50,000/year income)$250,000
Raising two kids (ages 3 and 5)$420,000
College tuition$320,000
End-of-life expenses$10,000
Total expenses$1,000,000

The college tuition cost assumes each child attends a private, out-of-state, four-year university. End-of-life expenses based on estimates for the U.S. funeral market.

Debts and liabilities

If you die with outstanding debt, your survivors may be responsible for all or part of it if they co-signed the loan. This could mean a spouse who co-signed your mortgage or your child who co-signed a student loan might end up bearing the financial burden. They will not be responsible for any debt they haven’t co-signed.

You want to leave enough for your beneficiaries to continue paying off loans, especially if they were secured by collateral that your dependents need to continue using, like your home or the family car. Even if they don’t live in the mortgaged house or drive the car, they may want to inherit either of these in the future, but creditors will have first dibs and may be able to seize the asset to recoup debt payments.

DebtAmount
Credit card$3,000
Mortgage$500,000
Auto loan$17,000
Total debt$520,000

Adding your expenses and debt gets you your total financial obligation, which is about $1.52 million here. Next, subtract your liquid assets ($20,000) from that amount.

Dependents

Factor in the cost of raising a child or caring for an aging parent. If you have any dependents, you may need to increase your policy amount by several hundred thousand dollars.

Different circumstances necessitate different coverage needs. Whether you’re an expecting parent or empty-nester, there’s an appropriate amount of life insurance suited for you.

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College expenses

If you have kids, you might want to factor in the cost of a college education in your decision to get life insurance. Higher education can provide upward mobility and a comfortable life for your children later on, but paying tuition can be one of the biggest expenses of adult life.

Plan for what college will cost in the future, and expect it to cost more than it does today. According to the College Board, in the last decade the average tuition at a four-year private college went up by more than $6,000.

Financial cushion

A 2020 study by LIMRA and Life Happens found that 44% of people would feel a financial impact within six months if their family’s primary wage earner passed away, and 28% would feel an impact within a month. When considering how much life insurance coverage you need, take stock of what you provide for your family. That might include necessities like food and medical expenses, or discretionary costs like family vacations. To get an idea of how much your loved ones depend on you, add up your monthly bills and fixed expenses.

End-of-life expenses

The average funeral expenses range from $8,000 to $10,000 once you factor in the funeral home and burial costs, like the casket. Many policyholders work these final expenses into their coverage so their families don’t bear a financial burden on top of the emotional toll of losing a loved one.

Personal considerations

While financial obligations are important, there are also factors to consider regarding your personal situation that may make a life insurance policy purchase seem more logical.

Health and age

Your health and age will determine not only how much insurance you should buy, but how long you'll want the coverage to last. The older you get, the less coverage you need because you will hopefully have less debt and fewer dependents to support.

However, while age is an important consideration when setting your coverage amount, it is not a reason to put off getting a policy. Life insurance rates increase with age. After all, the older you are, the closer you are to death, and a higher likelihood of death results in higher premiums.

If you purchase a policy when you’re young and healthy, you’ll get a more affordable premium for a potentially larger amount of coverage. For that reason, it’s best to lock in a good premium as soon as you have an insurable need.

Affording life insurance

How much life insurance can you afford? A life insurance policy isn't of use to you if you can't afford it. That's why it's important to consider how much you'll be able to pay in premiums each month. Higher coverage amounts equal higher premiums.

First you will need to decide between term and whole life insurance. Term insurance lasts a set number of years and then expires; whole life insurance lasts as long as you pay the premiums. Whole life insurance can be five to 15 times more expensive than a term policy, so most shoppers — especially those on a budget — should opt for term insurance.

Fortunately, term life insurance is more affordable than many people think. For example, a healthy 30-year-old male will pay $40.48 per month for a $750,000 policy that lasts 20 years. You can also minimize the cost by opting for a smaller coverage amount or a shorter plan.

The exact price of a life insurance policy depends on a number of individual factors including your medical history, lifestyle, and driving record. A licensed insurance agent or broker can talk you through shopping for life insurance and get you personalized quotes.

Financial considerationCalculationAmount
Financial obligationExpenses + debt$1.52 million
Coverage gapFinancial obligations - assets$1.5 million

What's left over is a $1.5 million coverage gap. This is ideally how much insurance you should buy.

After you’ve purchased your policy, you may find later on in life that your needs have changed. In this case you can adjust your coverage with a rider. Insurance riders are provisions to your policy that could come at an added cost.

Who doesn’t need life insurance?

Your need for life insurance depends a lot on where you are in life and whether you can afford the premiums with your income.

Here are a few instances in which you might not need a policy:

Low-income earners

Those with a low income may have a hard time finding room in their budget for a policy. However, term life insurance in particular is more affordable and to minimize cost you can opt for less coverage or a shorter plan.

For some, the price of insurance may still be too much in their financial situation, in which case it's better to focus on building savings first to meet your immediate needs.

Young singles

If you’re single, and don’t have kids, you probably don’t need that much life insurance. But you still might want to be prepared if that ever changes, since you’d net a lower premium while you’re still young and healthy.

Even if you’re single, you could always direct your life insurance death benefit to a charity or institution of your choice by naming it as your beneficiary.

Group life insurance participants

Some workplaces offer subsidized coverage through a group life insurance plan, so you might not need to buy your own individual policy. However, you may find that the coverage provided by your employer does not meet your needs, so additional coverage can supplement your employer’s plan. Check with your benefits administrator to see what your coverage is like.

Self-insured

Those who are self-insured or have the funds and means to stay afloat and provide for themselves and their family may not need life insurance. This might be a retiree who is financially free and doesn’t support anyone, or the fabulously wealthy who have enough funds stashed away to provide for their entire family.

Life insurance interstitial

The bottom line

The type, amount, and length of life insurance coverage that’s right for you will depend on your individual financial and health circumstances. While there are many types of life insurance that can be tailored to your needs, a term life policy that lasts as long as your financial obligations and outstanding debts is the most affordable and straightforward option for most people.

The amount of coverage you buy should account for your income, support for your dependents, end-of-life expenses, and your debts. Even if you don’t think you need life insurance now, buying a policy is about planning for the future, so factor in what you hope to provide for your loved ones now and in 20 or 30 years. When in doubt, multiplying your salary by 10 to 15 or using a life insurance calculator are quick ways to estimate your coverage needs.

About the authors

Personal Finance Editor

Elissa Suh

Personal Finance Editor

Elissa is a personal finance editor at Policygenius in New York City. She writes about estate planning, mortgages, and occasionally health insurance. In the past she has written about film and music.

Insurance Expert

Amanda Shih

Insurance Expert

Amanda Shih is an insurance editor at Policygenius in New York City. Previously, she worked in nonfiction book publishing and freelance content marketing. Amanda has a B.A. in literature and communication from New York University.

Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.

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