Your life insurance coverage should be large enough to help your beneficiaries cover any expenses and financial obligations they’d be responsible for in the event of your death. Experts suggest your coverage should be 10 to 15 times your income, but the actual amount will depend on your unique needs — for example, if you have a mortgage to pay or young children to raise, or if you only need enough funds to cover end-of-life expenses.
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In general, the easiest way to calculate how much life insurance you need to is add up your current and future financial obligations — like any debt, everyday household expenses, and childcare — and then subtract your liquid assets — such as any savings and retirement accounts. The result is the amount of coverage you’ll likely need.
You can also use our coverage calculator, located at the top of this page. All you need is to provide a few pieces of personal information — like your age and gender — and some information about your household finances — like your annual income, and total debt and savings — and we’ll calculate your life insurance needs for you.
Then you can connect with a Policygenius agent to explore the best policy for you at the most affordable price. At Policygenius, our experts are licensed in all 50 states and can walk you through the entire life insurance buying process while offering transparent, unbiased advice.
How to manually calculate how much life insurance you need
In general, the easiest way is to start by adding up your financial obligations and then subtract your liquid assets. The result is the amount of life insurance you need.
The following methods are variations of the same rule, but some of these can offer a more accurate picture than others. The best way to determine more precisely how much life insurance you need is to work with a financial advisor, or an independent broker.
Multiply income by 10
One common rule of thumb is that your coverage should be roughly 10 to 15 times your annual income. So for example, if you make $100,000 per year, you likely need around $1 million in life insurance coverage.
Multiply income by 10, plus $100,000 per child
If you have children, there’s a slight variation to that rule. Multiply your income by at least 10 (and up to 15), then add an extra $100,000 per child to account for each child’s education. This calculation, however, doesn’t include any existing assets like 529 plans.
The DIME formula
In this method — which stands for Debts, Income, Mortgage, and Education — 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
Your tally of your outstanding debts, separate from your mortgage, should include co-signed debt like car loans and student loans that your co-signer would become responsible for when you die. You can also include personal debt that might be taken out of your savings, like credit card debt.
You should also factor in income growth and the number of working years you have left.
Shortfall calculation
In this method you start by deciding the annual income you’d like to leave your beneficiaries and multiply it for the number of years you calculate they’ll need financial support.
Next, subtract from that amount other financial assets available to your beneficiaries in your absence, including savings, current and future gains on investment and retirement accounts, Social Security, and any salaries earned by your dependents.
The result is the shortfall you’ll need to cover through a life insurance policy.
Tips for figuring out how much life insurance you need
The length and coverage amount of the policy you pick will determine your life insurance costs. That’s why it’s also important to find the right type of coverage at the most competitive rate — the cheaper your rate, the more coverage you’ll be able to afford.
These tips will help you find the right life insurance coverage for you.
Determine the type of life insurance you need
Do you need coverage for life or only for a set period of time? Are you considering life insurance just to provide a financial safety net to your loved ones, or are you also interested in using it as an investment tool? Your answers will determine the right type of life insurance for you — and your life insurance quote.
Term life insurance is one of the most affordable life insurance coverage options on the market, only lasts for a set term — usually between 10 and 30 years — and doesn’t come with any complex tax implications or restrictions. Term life is the best option for most people looking to protect their income and provide their family with a financial safety net to cover any debts — including a mortgage or any other types of personal loans.
Whole life insurance and other types of permanent life insurance are good options for high-net-worth individuals who are interested in using life insurance to diversify their investment portfolio, or people with long-term financial obligations or coverage needs, like dependents who require lifelong care. Whole life never expires and comes with a cash value that earns interest in addition to the death benefit payout. Because of that, it’s usually significantly more expensive than traditional term life policies. If you’re already maximizing your contributions to tax-advantaged accounts like a Roth IRA or a 401(k) and are seeking another investment option, whole life might work for you.
Comparing term life vs. whole life insurance
Features | Term life insurance | Whole life insurance |
Permanent coverage | No — maximum of 30 to 40 years | Yes |
Cost* ($500,000 coverage amount) | $26/month for a 20-year term | $440/month |
Guaranteed death benefit payout | Yes | Yes |
Guaranteed cash value | No | Yes |
Premium cost stays fixed | Yes, in most cases | Yes, in most cases |
Pays annual dividends | No | Yes, in some cases |
*Methodology: Average monthly term life insurance rate is for male and female non-smokers with a Preferred health rating obtaining a 20-year, $500,000 policy. Term life insurance averages are based on a composite of policies offered by Policygenius from Banner Life, Brighthouse Financial, Corebridge Financial, Foresters Financial, Lincoln Financial, Mutual of Omaha, Pacific Life, Protective, Prudential, Symetra, and Transamerica. Average monthly whole life insurance rate is calculated for non-smokers in a Preferred health classification, obtaining a whole life insurance policy paid up at age 100 from MassMutual. Rates may vary by insurer, term, coverage amount, health class, and state. Not all policies are available in all states. Rate illustration valid as of 09/01/2023.
→ Learn more about the differences between term life and whole life insurance
Don’t wait to buy life insurance
Life insurance gets more expensive by 4.5% to 9% every year you age because we all become riskier to ensure as we become older. This means the sooner you buy life insurance, the cheaper your premiums will be.
For example, a healthy, non-smoking 25-year-old can expect to pay around $24 per month for a 20-year term life insurance policy with a $500,000 death benefit payout, according to the Policygenius Life Insurance Price Index. A healthy non-smoking 35-year-old would pay a bit more — around $29 per month — for the same coverage. But the life insurance premium for a healthy 45-year-old for the same coverage would more than double that amount — around $57 per month.
The earlier you buy life insurance, the higher your chances of locking in the most competitive rates will be — potentially allowing you to afford the amount of coverage you need for less.
→ What happens if you outlive your life insurance policy?
Buy term life for the most affordable policies
If you’re considering life insurance to cover everyday expenses and any financial obligations your family would be responsible for in your absence, a term life policy can be an affordable coverage option for you.
Term life policies are easy to understand, provide coverage during your peak earning years, come with few strings attached, and most importantly, are many times cheaper than a whole life insurance policy.
How much cheaper? For example, a healthy 35-year-old would pay $24 per month for a 20-year term life insurance policy with a $500,000 face value. The same person would have to pay around $526 per month for a whole life insurance policy with the same face value — over 20 times more.
Compare life insurance providers quickly and easily
Life insurance is federally regulated, so no insurer will be able to offer you any discounts. However, every life insurance company treats the different factors that will determine your life insurance rate differently — including, your age, gender, lifestyle habits, and more importantly, your health.
Comparing life insurance quotes from multiple insurers is the best way to find the cheapest coverage option for you. And the best way to do so is by working with an independent broker.
Independent brokers like Policygenius are not affiliated with any insurer and sell policies from multiple companies. At Policygenius, our experts are licensed in all 50 states and can walk you through the entire life insurance buying process while offering transparent, unbiased advice.
Frequently asked questions
How does the life insurance company I choose affect my how much I will pay?
Every life insurance company treats the different factors that will ultimately determine your life insurance rates differently, including your age, sex, lifestyle habits, and more importantly, your health. Choose the insurer that offers you the most competitive rate for your particular profile and coverage needs.
How do I find the cheapest life insurance?
Working with an independent broker can help you compare quotes and offers to get you the cheapest life insurance coverage for your profile.
What’s the minimum amount of life insurance coverage I need?
Your life insurance policy should be able to support your dependents’ everyday needs for several years and cover your end-of-life expenses. You can potentially lower the payout of a new policy if you have significant savings or existing life insurance.
Is there a rule of thumb for how much life insurance you need?
A common rule of thumb is to multiply your annual income by 10 to 15 times to get a ballpark estimate of how much life insurance you need. If you have children, you can add $100,000 per child to that amount to account for their education.
How much life insurance do I need at age 60?
You’ll likely need less insurance at age 60 than you did at age 30 or 40 — but the exact amount will depend on your income, assets, liabilities, and dependents. Speaking with a licensed agent or using a life insurance calculator can help you determine how much you need.
Do I need any life insurance riders?
Life insurance riders are policy add-ons that can supplement your coverage under special circumstances. Common riders include the accelerated death benefit rider or the critical insurance rider, which allow you to use part of the death benefit payout early if you’re diagnosed with a qualifying health condition. Some riders are included at no cost, but others can be added for an additional fee. Talking with a licensed agent can help you decide if including a rider to your policy is right for you.
