The most common answer to “how much life insurance do I need” is a rule of thumb: ten times your salary, or some similar multiple. Rules of thumb are a reasonable starting point for a conversation, but they are not a real number, because they ignore what actually makes up your family’s financial picture. Two people earning the same salary can have very different real needs depending on debt, dependents, and what a surviving spouse would actually need to keep the household running.
Start With What Would Actually Need to Be Paid For
A more useful approach adds up the real obligations your coverage would need to cover:
- Remaining debt. Mortgage balance, car loans, credit cards, student loans, anything that does not disappear just because income does.
- Final expenses. Funeral and burial costs, which commonly run several thousand to over ten thousand dollars depending on arrangements.
- Income replacement. How many years of your income would your family need replaced? Common ranges are 5 to 15 years, depending on the ages of any dependents and how far off retirement is.
- Future obligations. College costs for children, ongoing care for a dependent with special needs, anything with a real future price tag attached to it.
Add those together, then subtract what you already have: existing savings, other life insurance already in force, and any income a surviving spouse would still bring in on their own. What is left is a real, specific number, not a multiple pulled from a general rule.
A Simple Example
Consider a parent with a $250,000 mortgage balance, two young children, and an income they want replaced for 10 years at $60,000 per year. That is $250,000 plus $600,000, or $850,000, before adding final expenses or subtracting existing savings. If they already have $50,000 in savings and a small $50,000 policy through work, the real remaining need is closer to $750,000, not whatever multiple of salary a generic calculator suggested.
It Changes Over Time
The number you need in your 30s with a new mortgage and young kids is not the number you need in your 50s with the mortgage nearly paid off and kids through college. This is one of the real advantages of term life: you can size a policy for the specific years that need the most coverage, rather than overpaying for permanent coverage you do not need yet. It is also worth revisiting your coverage after any major life change: a new child, a new mortgage, a change in income, or a spouse leaving the workforce to raise kids.
If you want to actually run these numbers against your own situation rather than guess at a multiple, that is a conversation we are glad to have, with no obligation either way.