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How much life insurance do I need?

Everyone’s needs vary. When buying life insurance, you have to consider things such as the ages of your spouse and kids, how much of your income they need to survive and future big expenses like a mortgage and college.

Buying life insurance is a smart move. But everyone’s needs vary. You have to consider things such as the ages of your spouse and kids, how much of your income they need to survive, future big expenses like a mortgage and college, and how much life insurance you can afford.

Read on for:

Financial obligations for life insurance

Life insurance offers protection to your family and other people who depend on you financially. Based on the policy you get (and whether you’ve kept up with its premiums), if you die, your beneficiaries receive a death benefit in a guaranteed amount.

Unless you can self-insure — meaning you have so much in savings that your family won’t face a significant financial burden if you die — you need to figure out how much life insurance to buy. The right policy adequately covers your beneficiaries … at a premium you can truly afford, given not making monthly payments leads to a lapse. As a rule of thumb, adequate coverage comes down to a “needs-based analysis” that takes stock of everything you pay for (or would need to pay for in the future).

If you find yourself asking "How much life insurance should I buy?" and aren't sure where to start, consider the following.

Financial considerations

  • Outstanding debts If you die with unpaid debt, your survivors may be on the hook for all or part of it. That happens when you have co-signers on a loan, such as a mortgage, which your spouse could be responsible for as well. You want to leave enough for your beneficiaries to continue paying off your loans, especially if those loans are secured by collateral your dependents need to continue using. Like the family car or home.

  • College If you have kids, we recommend factoring in the cost of college education in your decision to get life insurance. Education can provide upward mobility and a comfortable life for your children, but at ten of thousands of dollars a year, your kids’ tuition (as well as room and board, textbooks and all the other costs of college) is often one of the biggest expenses of your adult life. It’s important to plan for what college will cost years from now – likely much more than it does when you buy your policy.

  • Dependents If you have children or other dependent relatives who rely on you for care, expect to increase your life insurance purchase by several hundred thousand dollars on top of what you’re already getting. This amount could cover the long-term care you already provide for your dependent family member.

  • Financial cushion When considering how much life insurance you need to get, take stock of what you provide for your family. That could mean the necessities, like food and medical expenses, or discretionary costs like family vacations. To get an idea of how financially dependent on you your loved ones are, add up your monthly bills and fixed expenses. You’ll want to make sure the life insurance death benefit helps to take care of your share of these items.

  • End-of-life expenses The average funeral expenses range from $7,000 to $10,000 once you factor in the cost of 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 while dealing with the emotional toll of losing a loved one.

Your health & age

The older you get, the less coverage you need. That’s because you’ll hopefully have fewer debts and dependents to support.

Big note here, though: Age is an important consideration when setting your coverage. It’s not a reason to put off getting a policy. The older you are, the more likely you are to die. The more likely you are to die, the higher your premiums. In other words, you’ll get a more affordable rate for a potentially larger amount of coverage, if you purchase a policy when you’re young and healthy.

For that reason, it’s best to lock in a good rate as soon as you need coverage.

How much life insurance can you afford?

A life insurance policy isn't of much use if you aren't able to 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 mean higher premiums.

Most shoppers will decide between term and whole life insurance. Term life insurance lasts a set number of years and then expires; a whole life policy lasts for as long as you pay the premiums. Whole life insurance can be around six to 10 times as expensive as a term policy, so most shoppers - especially on a budget - should opt for term life insurance.

Learn more about the differences between term and whole life insurance.

The good news is that term life insurance is more affordable than many people think. While the exact price depends on a number of individual factors, the average cost is between $300-$400 per year.

Learn more about how much life insurance costs.

How much life insurance should I get?

Term life coverage is available between $20,000 and $10 million. Per anonymized Policygenius data, people in their 30s and 40s most commonly purchase policies providing between $250,000 and $1 million in coverage. Keep in mind, these coverage amounts are what people are electing to buy — they don’t necessarily reflect how much coverage is ideal.

A broad rule-of-thumb for younger applicants is to cover 10 times your income — but, if to get a more pointed estimate, you’ll need to do some math.

Let’s imagine a fairly typical American family. You’re the father of a four-person household including your wife and two kids. Assume you earn $50,000 a year and have assets totaling an additional $20,000. You also have about $500,000 left on a mortgage you expect to pay off in 20 years.

After accounting for the cost of raising your kids as well as their future college expenses, you have about $1.9 million in financial obligations, meaning that you ideally need that amount minus your liquid assets covered by life insurance — so about $1.8 million in coverage.

RESOURCES
After-tax income$32,500
Assets$20,000
------
EXPENSES
Five years of support at $32,500/year$162,500
Raising two kids, ages 3 and 5*$1,176,147
End-of-life expenses$10,000
Total expenses$1,348,647
------
DEBT
Credit card debt$5,000
Auto loan$3,000
Mortgage$500,000
Total debt$518,000
------
Total financial obligations (Expenses + Debt)$1,856,647
Total financial obligations minus assets$1,836,647
------
RECOMMENDED COVERAGE$1,840,000

*Assuming each goes to a private, out-of-state, four-year university, plus childcare expenses

Life insurance calculator

It's a good idea to see a breakdown of the costs you need to consider for life insurance so you understand your coverage needs, but that doesn't mean you have to do all of the math by hand.

Use this life insurance calculator to easily determine how much money you need to cover your financial oblications. It will automatically add up your debts and expenses, along with your assets and how long you need coverage to last, and determine your coverage gap. This will let you know how big your policy death benefit should be.

Calculate Coverage

Who doesn’t need life insurance?

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

Here are a few instances where you might not need a policy.

You’re a low-income earner

Lower-income people may have a hard time finding room in their budget for a policy. Having said that, term life insurance, specifically, is more affordable than people realize: a healthy 30-year-old pays an average of just $21 a month for a 20-year policy. For some people that’s just too much to bear in their financial situation. Focus on building savings first to meet your immediate needs.

You’re young & single

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, given buying while young and healthy lowers a policy’s price tag. Also, if you’re the type of benevolent recluse who wants to give back, you could direct your life insurance plan to pay out to a charity or institution of your choice.

Your spouse has life insurance

If you and your spouse have kids, it makes sense for both of you to have life insurance. The loss of one parent’s income could mean a financial setback regardless of whose income it is. You won’t need less insurance because your spouse has more.

However, if you and your spouse don’t have kids, how much life insurance is enough depends on what your savings looks like. A death benefit payout could help maintain a certain standard of living, but the surviving spouse probably won’t struggle with her necessary expenses if he or she has an income stream of their own.

You have workplace coverage

Many people receive coverage through their employer. However, workplace life insurance policy may not be enough for you. Plus, it’s tied to your employment so you can’t take it if you change jobs. Check with your benefits administrator to see what your coverage is like. If it’s not high enough to meet your needs, consider getting additional coverage to supplement your employer’s plan.

You can self-insure

If you’re already fabulously wealthy, with enough funds stashed away to prevent financial ruin for your family, you’re basically already self-insured. You may not need life insurance.

Read more

How much life insurance do you need?

Learn the 5 financial factors to take into account when deciding how much life insurance you need.

Learn More

Term life vs whole life insurance

Most shoppers will need to decide between term and whole life insurance. Which one is right for you? Find out.

Learn More

Life insurance calculator

This easy-to-use calculator lets you crunch the numbers quickly to find the perfect life insurance policy.

Learn more

Disclaimer: 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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