Life insurance calculator

Not sure how much life insurance you need? Crunch the numbers with our easy-to-use life insurance calculator.

Colin Lalley 1600

Colin Lalley

Published March 13, 2018

Easily figure out your life insurance needs

Whether you’ve already decided you need a life insurance policy to protect your family or you’re just curious about how much it might cost, the first question you need to answer is how much coverage you really need. Thankfully, our life insurance calculator makes it easy to figure out.

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How to calculate your life insurance needs

Before we had tools online to help us figure these things out, the first step in getting life insurance was to sit down with a financial adviser or life insurance agent and do a life insurance needs analysis worksheet.

This basically consists of:

  1. Adding up your current debts, monthly living expenses and income, multiplying them by the number of years your family would need support and adding any extra financial obligations like college tuition.
  2. Subtracting your current assets, the value of any life insurance policies you already own (like group life insurance coverage you may have through work) and any future assets like social security benefits.

The remaining number is the coverage gap — the amount your family would need to be financially comfortable in your absence. This is the coverage amount you should select as the death benefit. The amount of time your family will require coverage is called the term.

You may have heard a general life insurance rule of thumb is to buy ten times your annual salary. However, relying on a rule of thumb like this is a bad idea, as everyone’s individual circumstances and living expenses are different, and an imprecise calculation can easily mean leaving your family underinsured, or have you overpaying for coverage you don’t really need for years.

“One size does not fit all,” says Policygenius’ Emily Strobelberger. “While life insurance rates depend largely on a client's health, finances (specifically income) are also a major factor in determining how much life insurance coverage people need. In addition to income, factors like number of dependents and net worth could help justify the amount requested.”

Two final things to take into account when making a life insurance calculation: First, the payment your beneficiaries receive is tax-free, so you can use your after-tax (take-home) pay to calculate your income replacement needs. Second, remember that the death benefit gets paid upfront, but your beneficiaries won’t use it all at once. Much of it can be invested, and the rate of return can provide additional income to make the benefit last longer. However, you’ll also want to consider the inflation rate over a 20- or 30-year term.

Learn more about how much life insurance you need.

Cost of life insurance

The good news is that most people overestimate the cost of a term life insurance policy by at least 2x to 3x. There are a number of factors that determine your life insurance premium, including:

  • Age: Life insurance is cheaper when you’re young, and increases 8-10% per year
  • Health: Any health conditions or unhealthy habits like smoking make life insurance more expensive
  • Coverage amount: The bigger the death benefit you select, the more higher your premiums
  • Term: A 30-year policy costs a bit more than a 20-year term policy

A healthy 30-year-old male who purchases a 20-year term policy with a $500,000 death benefit can expect to pay approximately $28.58 monthly.

Term or cash-value life insurance?

The other thing that will affect your life insurance premiums is the type of life insurance that you buy. So far we’ve been discussing term life, which is by far the most affordable kind of life insurance. Permanent policies like whole life insurance build cash value over your entire life out of the premiums you pay, but the death benefit phases out so that by the time you reach your golden years the policy will only pay out what you’ve paid in, plus some interest.

On top of that, whole life policies are usually at least six to 10 times more expensive than term policies for the same benefit amount. For this reason most people choose term for their insurance needs, and other tools such as individual retirement accounts to build savings. For more on term vs. whole, go here.


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How to choose a life insurance company

All life insurance companies offer the same financial protection, and thanks to regulations they’re all guaranteed to pay if the worst happens (with some rare exceptions for self-inflicted injury, fraud and crimes). So how to know what life insurance company you should go with?

Simple: whichever one gives you the best rate. Life insurance companies offer the same product, but they have different methods for measuring risk. One company may see you as risky to insure, while another may see you as a relatively safe bet. Therefore you may get a wide range of life insurance quotes from different providers.

So it’s important to compare quotes from as many life insurance carriers as possible before buying a policy. You can use our tool to compare unbiased, accurate life insurance quotes from the nation’s top insurers tailored to your specific profile. Get started in minutes today.

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.