How Much Life Insurance Should You Have?

Determine your financial and coverage needs in advance to get the closest estimate of coverage needed with our life insurance calculator.

There are two rules that many financial professionals recommend using when estimating how much life insurance you need: the 10 Times Rule and DIME Rule.

Note that these rules are guidelines, and everyone’s coverage should be personalized. Jiten Puri, CEO of PolicyAdvisor offered RetireGuide advice on what most people forget to consider in their life insurance coverage.

“Many people forget to factor in inflation and the general rise in costs over time when it comes to their insurance policy. The value of $500,000 today will not be the same 30 years from now, and that could mean your family will have less than you actually intended,” Puri told RetireGuide.

Purchasing coverage worth 10 times your annual salary can help your family pay debts, cover daily expenses, invest for the future and provide college tuition for your children.

The 10 Times Rule tends to be more of a guideline than an ironclad rule. Some financial experts recommend benefits worth five to seven times your yearly salary, while others like Puri, say you may need as much as 15 times your annual income.

“I recommend, as a base method, to get enough life insurance coverage for 10-15 times your annual salary. But one should also consider things like the age of one’s children, for example – as they could need more than that over a long term,” Puri told RetireGuide.

For instance, if your salary is $75,000,  then the minimum life insurance coverage should be about $750,000. Remember this amount doesn’t include your debt, mortgage and potential education costs — that portion should be covered using the DIME Rule.

Once you multiply your salary by ten, you can plug in that number in the income section of the DIME rule for an even more accurate coverage estimation.

The DIME rule offers a more personalized approach to determining your ideal coverage amount.

DIME stands for debt, income, mortgage and education. “The DIME rule is a great starting point for people to think about in terms of how much coverage they should have at certain ages,” Steve Rohrig, Chartered Life Underwriter®, Chartered Financial Consultant® and Retirement Income Certified Professional® told RetireGuide.

Combined, the 10 Times and DIME Rule should provide you with a rough estimate of how much life insurance you need.

However, consider confirming if you have enough coverage with a licensed financial advisor to avoid accidentally placing financial stress on your loved ones.

For a deeper analysis, learn more about the specific factors that influence your coverage needs and how they can dictate what type of life insurance policy you choose.

Generally, there are six main factors that affect the amount of life insurance coverage you need: if you have kids, personal debt, end-of-life expenses, loss of income, your general age and overall health.

A life insurance policy provides a death benefit to cover your debts, loss of income, end-of-living expenses and more, which would otherwise fall to the responsibility of your loved ones and face them with unnecessary financial hardship.

Key milestones may fluctuate your life insurance coverage needs, such as if you were to open your own business, or if your child graduated college. Learning how these factors affect your needs can make it easier to calculate the exact amount of life insurance coverage you need.

If you have children, you’ll need to consider the cost of raising each of them. According to a 2022 study by the Brookings Institution, it’s estimated that the total average cost to raise a child from birth to age 17 is $310,605.

Any debts you leave behind after you die can reduce assets you had intended to leave to heirs. In addition, if your spouse or someone else co-signed a loan or held a joint account with you, that person will be responsible for paying off the obligation.

The average funeral costs between $7,000 and $12,000, according to Lincoln Heritage Funeral Advantage. If you want to be cremated instead of buried, the average cost is between $6,000 and $7,000. Covering these expenses in your life insurance coverage will keep the responsibility from falling on your family.

Your health and age play a direct role in how much insurance you need, how long you need it and how much it may cost. For example, some people may need less coverage later in life because they have fewer dependents to support.

More life insurance coverage equals higher premiums; how much money you earn will directly impact the amount of life insurance you can afford. It’s important to consider how much room you have in your budget to pay monthly premiums.

The average life insurance cost, caps in coverage and specific life considerations can help guide you to the right life insurance policy.

How much life insurance coverage you need will help you determine what type of life insurance policy you choose. The two main life insurance policy types are term and permanent.

When comparing the premium costs of term and permanent policies, a term policy is more affordable for coverage for a specific time period.

For example, if you need $1 million in life insurance coverage, but can’t afford costly permanent premiums, you can choose a term policy instead. That way, you have the right coverage amount, without the hefty price tag.

Keep in mind that term policies provide temporary coverage, typically between 10 to 30 years. If that doesn’t fit your coverage needs, reevaluate and then speak with an advisor.

Editor Malori Malone contributed to this article.