Your life insurance coverage should be large enough to help your beneficiaries cover any expenses and financial obligations they’d be responsible for in your absence. Experts suggest your coverage should be 10 to 15 times your income, but the actual amount will depend on your unique coverage needs.
You can use our coverage calculator, located at the top of this page. Here are more details on how our calculator gets to your suggested coverage amount.
How we calculate your life insurance coverage
Personal information like your age and gender, along with details about your financial situation, help us calculate how much coverage you should get, how long your term should be, and how much you can afford to pay.
Here’s how each piece of information plays into calculating your life insurance needs.
Date of birth
The younger you are, the lower your premiums will be. Your age will also determine how long your coverage should last.
Gender
Based on current offerings, women pay an average of 24% less for life insurance than men; women tend to live longer than men, so covering them is considered less risky by insurance companies.
Annual income
The higher your income, the more coverage you’ll need to replace it. It’s important to have coverage that’s proportional to your income, expenses, and lifestyle.
Do you have a spouse or partner?
You don’t have to be legally married; if you share finances with a partner, there’s likely a need for coverage.
Number of children under age 18
If you have multiple children under 18, you’ll need enough coverage to support them until they’re financially independent.
Total household debt
Add up any debt such as a mortgage, credit card debt, car loans, or student loans. Account for any financial obligations your beneficiaries would need to cover in your absence.
Total household savings
Add up any checking and savings accounts between you and your spouse, if applicable. These are the liquid assets your beneficiaries can count on.
Recommended coverage for you
The right policy for you will include the coverage amount, but also the term length — or how long your policy lasts.
- Optimal coverage: Ideally, your policy will have enough coverage to pay for your family’s expenses for a meaningful length of time, and a term long enough to last through your final financial obligation — whether that’s paying off a mortgage or getting your children through college.
- Coverage on a budget: It’s important to buy a policy you can comfortably pay for year after year. You can opt for a shorter term to lower your premium, and speak with an agent who can walk you through different options to make sure you’re getting the best policy for you.
Keep in mind you can have multiple life insurance policies at once, so if your finances change in the future and you need to supplement your existing coverage, you can always ladder policies.
How did we calculate your term (and your spouse’s)?
Your term length is calculated based on your age and the age of your children. This is designed to last until you reach retirement age or until your youngest child turns 26, whichever comes later.
How did we calculate your coverage (and your spouse’s)?
Your coverage is calculated based on your age and term length, and is a multiple of your income. If you’re 40 or younger or your coverage needs to last 30+ years, we multiply your income by 15; the older you are, the lower the multiple is.
How to manually calculate how much life insurance you need
To manually calculate how much life insurance you need, start by calculating your financial obligations and then subtract your liquid assets. The result is the amount of life insurance you need.
Some of these methods 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 to multiply your annual income by at least 10 times (and up to 15 times) to get your estimated coverage amount. 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 times (and up to 15 times). 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 how much you pay for life insurance. 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, and comes with few rules and tax 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 people looking to use life insurance to diversify their investment portfolio or those 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 five to 15 times more expensive than traditional term 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.
Don’t wait to buy life insurance
Shopping for life insurance while still young and generally in good health is a smart financial move because life insurance gets more expensive by 4.5% to 9% every year you age — this is simply because we all become riskier to ensure as we become older.
For example, a healthy 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 35-year-old would pay a bit more — around $28 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 $55 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.
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.
Skip extra life insurance riders
Riders are policy add-ons that provide supplemental coverage under special circumstances — for example, if you’re diagnosed with a critical illness or you want to cover a family member under the same policy.
Some riders are included at no cost, while others can be added to your policy for a monthly fee. When you shop for life insurance, make sure to discuss your options with a licensed agent to ensure that you only pay for the coverage you need and nothing 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 providers 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 calculated cost?
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.
