How Much Life Insurance Do I Need?

Shawn Plummer

CEO, The Annuity Expert

How much life insurance do I need? In this guide, we’ll go over how to calculate how much life insurance coverage you need. A calculator, checklist, and a questionnaire are provided to figure out how much you need exactly. Once you’ve figured out how much coverage is needed, you can run life insurance quotes to find the best policies with the cheapest rates.

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Who Do You Want To Protect?

The first step in calculating life insurance needs is figuring out how you want to protect yourself when you pass away. Think about spouses, children, parents, business partners as an example.

How much life insurance do I need, rule of thumb?

The rule of thumb for deciding how much life insurance is needed to purchase is 10 times the current annual household income.

How much life insurance do I need for my spouse?

Consider your spouse or partner’s age and how long they would need to survive on the life insurance proceeds before getting back on their feet. Then, when considering life insurance for either a wife, husband or partner, calculate these future needs:

  • Your funeral costs.
  • Your mortgage to pay off the house.
  • Pay off car loans.
  • The current cost of monthly expenses (electric, water bills, cable, internet, etc.)
  • Health Insurance, Dental Insurance, Vision Insurance
  • Any additional outstanding debts.
  • College tuition if a spouse or partner is still in school.
  • Calculate your spouse’s Social Security Benefits they would receive at retirement age.
  • Income during retirement
  • Consider inflation so your loved ones can maintain their lifestyle.

How much life insurance do I need for my child?

When considering children, at a minimum, consider the amount of time the life insurance would need to support them before they become adults. Then, when considering life insurance for your children, calculate these future needs:

  • Current school expenses or tuition.
  • Future college tuition.
  • Health Insurance, Dental Insurance, Vision Insurance
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Life Insurance For Individuals With Disabilities or Specials Needs

If you have a family member with a disability or special needs, the financial needs will be slightly different simply because the life insurance will need to support those members for the rest of their lives. When calculating the needs, consider:

  • Specialty education, tutoring, or therapy
  • Their on-going medical needs or equipment
  • Health Insurance, Dental Insurance, and Vision Insurance
  • In-home care or housing options for adults with special needs

Life Insurance For Seniors

If you support your parents financially, consider:

Life Insurance For Business Owners

When considering life insurance as a business owner, calculate these future needs:

  • Compensating key-employees
  • Paying off all debt to creditors
  • Monthly expenses to keep the lights on
  • Expenses to recruit and train your replacement

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Calculating Life Insurance Needs

Find The Best Life Insurance Coverage At The Cheapest Cost!

Compare life insurance quotes from 25 companies in seconds. Then, apply for coverage in less than 10 minutes.

Life Insurance Calculator

When calculating your beneficiary’s needs, there are a few questions you need to answer first to determine the outcome. These are those questions:

How much does a funeral cost?

A funeral is inevitable, and it can get expensive. According to parting.com (a funeral home comparison website), the average funeral can cost between $7,000 and $10,000. This is a “ballpark” figure to consider.

How much life insurance do I need for my mortgage?

Grab your last mortgage statement and factor in the current amount owed on the house. This way, you can be confident that your surviving spouse will have enough to pay off the house either now or in the future.

How much debt is owed?

Calculate the amount of credit card debt, student loans, car loans, business loans, medical bills owed that can be paid off immediately when your beneficiaries collect the life insurance proceeds.

What is the household’s annual income?

Essentially you want to replicate and maintain your current lifestyle after you’ve died. Factoring in your current household income is a great starting point.

Tip: Factor in your current gross household income when calculating the amount of life insurance. Why? Because the life insurance proceeds will be tax-free. Gross household income is the amount of money before taxes are taken out. The amount that would have gone to taxes can be a cushion to help keep up with inflation and maintain your family’s lifestyle.

How much money to cover daily living expenses?

First, gather all of your monthly bills (excluding mortgage) and add them together. Essential monthly bills should include:

  • Groceries
  • Car payments
  • Gas for your car
  • Tuition
  • Cable bill
  • Internet bill
  • Phone bill
  • Heating bill
  • Electric bill
  • Garbage bill
  • Water bill
  • Childcare
  • Car Insurance
  • Health, Dental, and Vision Insurance
  • College Savings

Emergency Funds

Having a chunk of money saved for unforeseen emergencies is vital in calculating life insurance. For example, think about if your surviving spouse can’t go back to work immediately due to depression during the grieving process. Plan for at least 3 months to 12 months of expenses to be paid for so that your loved ones can naturally get back to normal at their own pace without the additional stress.

How long should the life insurance support your beneficiaries?

The amount of time the life insurance proceeds support your beneficiaries is key when figuring out how much life insurance you need. Things to consider:

Does your employer provide life insurance?

Employers providing their employees with a supplemental life insurance policy is common in building out a benefits package. Typically, the employer-sponsored life insurance policy equates to a 1-year salary or more. However, it is not wise to purchase additional insurance from the employer because it will be null and void if you leave the company. Instead, purchase an individual life insurance policy on your own.

Life Insurance For Non-U.S. Residents

Life Insurance offers many benefits to the owner and beneficiaries regardless of their citizen status. However, a life insurance policy’s characteristics may assist foreign nationals …
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Shawn Plummer

CEO, The Annuity Expert

I’ve sold annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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