How Much Life Insurance Do I Need?

Many financial experts recommend purchasing life insurance coverage worth eight to 15 times your annual income. However, everyone’s situation is different. Selecting the right amount of coverage for you depends on many factors, including your family, health, age and financial priorities.

Rachel Christian, writer and researcher for RetireGuide
  • Written by
    Rachel Christian

    Rachel Christian

    Financial Writer and Certified Educator in Personal Finance

    Rachel Christian is a writer and researcher for RetireGuide. She covers annuities, Medicare, life insurance and other important retirement topics. Rachel is a member of the Association for Financial Counseling & Planning Education.

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  • Edited By
    Matt Mauney
    Matt Mauney, Senior Editor for RetireGuide

    Matt Mauney

    Financial Editor

    Matt Mauney is an award-winning journalist, editor, writer and content strategist with more than 15 years of professional experience working for nationally recognized newspapers and digital brands. He has contributed content for ChicagoTribune.com, LATimes.com, The Hill and the American Cancer Society, and he was part of the Orlando Sentinel digital staff that was named a Pulitzer Prize finalist in 2017.

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  • Financially Reviewed By
    Eric Estevez
    Eric Estevez, Independent Licensed Life Insurance Agent

    Eric Estevez

    Licensed Independent Insurance Broker

    Eric Estevez is a duly licensed independent insurance broker and a former financial institution auditor with more than a decade of professional experience. He has specialized in federal, state and local compliance for both large and small businesses.

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  • Published: May 27, 2020
  • Updated: July 22, 2022
  • 4 min read time
  • This page features 7 Cited Research Articles
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APA Christian, R. (2022, July 22). How Much Life Insurance Do I Need? RetireGuide.com. Retrieved September 27, 2022, from https://www.retireguide.com/life-insurance/how-much-do-i-need/

MLA Christian, Rachel. "How Much Life Insurance Do I Need?" RetireGuide.com, 22 Jul 2022, https://www.retireguide.com/life-insurance/how-much-do-i-need/.

Chicago Christian, Rachel. "How Much Life Insurance Do I Need?" RetireGuide.com. Last modified July 22, 2022. https://www.retireguide.com/life-insurance/how-much-do-i-need/.

Who Needs Life Insurance?

Everyone may not need life insurance. If you’re young and single, for example, a policy may not be beneficial.

However, if you have financial dependents, such as a spouse or children, purchasing life insurance can be a smart way to safeguard their future after you die.

Around 57 percent of adults in the United States own a life insurance policy, according to a joint study by LIMRA, an industry group, and Life Happens, a nonprofit insurance advocate.

Factors That Influence Life Insurance Needs
Dependents
Raising a family is expensive. The USDA estimated the cost of raising a child was about $12,980 a year in 2015. And that figure doesn’t include the cost of college tuition. If you have children, your partner may have issues affording these expenses without you.
Personal Debt and Liabilities
Any debts you leave behind after you die can reduce assets you had intended to leave to heirs. 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.
End-of-Life Expenses
The median cost of a funeral with cremation is about $5,150, and the median cost of a funeral and burial is about $7,640, according to the National Funeral Directors Association. Life insurance can help your family pay these final expenses without worrying about the cost.
Age and Health
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. You may need more coverage in your 30s and 40s as you raise a family.
Income
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. More life insurance coverage equals higher premiums.
Josh Curtis, founder and lead investment advisor of Clarity Financial LLC, explains how much life insurance most people need.

Strategies for Determining Life Insurance Needs

There are a few best practices when it comes to calculating how much life insurance you need.

The National Association of Insurance Commissioners suggests asking yourself a few questions before you get started.

Questions to consider include:
  • How much of the family income do you provide?
  • Do you have any other financial dependents, such as a parent, grandparent or siblings?
  • Do you want to leave money to any nonprofit organizations?
  • Will your family owe estate taxes after you die?
  • How will inflation impact your family’s future financial needs?

10 Times Rule

Purchasing 10 times your annual income in insurance benefits is a standard way of calculating how much life insurance coverage you need.

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

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

However, until you take a closer look at your personal finances, there’s no guarantee that 10 times your annual income will adequately cover your family’s needs.

DIME Rule

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

DIME stands for debt, income, mortgage and education.

The DIME Rule
Debt
This includes any loans, business debts, credit card balances and an estimate of your funeral expenses.
Income
Calculate how long your dependents will need to rely on your salary and then multiply your income by that number. For example, if you have two children — ages 10 and 13 — you will need at least eight times your annual salary to cover expenses for your youngest child until he or she graduates high school.
Mortgage
Decide how much you still owe on your mortgage.
Education
Estimate the cost of sending your kids to college.
Josh Curtis, founder and lead investment advisor of Clarity Financial LLC, explains how you should determine how much life insurance you need.
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What Type of Life Insurance Do You Need?

There are many different types of life insurance policies, but all options fall into two main categories.

The two main types of life insurance are:

Term life insurance lasts a specific amount of time, such as 10, 20 or 30 years. These policies tend to be more affordable than permanent life options and may be ideal for young families.

Permanent life insurance refers to policies that never expire. However, this lifelong coverage comes at a cost. These policies tend to be more expensive than term life.

There are several kinds of permanent life insurance plans, but the most common is whole life insurance.

Types of permanent life insurance policies include:
  • Whole
  • Variable
  • Universal
  • Variable universal

All permanent life plans include an investment component you can borrow against.

Permanent life tends to be more popular with high-income earners who use these policies as another investment vehicle.

Last Modified: July 22, 2022
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7 Cited Research Articles

  1. Lino, M. (2020, February 18). The Cost of Raising a Child. Retrieved from https://www.usda.gov/media/blog/2017/01/13/cost-raising-child
  2. Iacurci, G. (2020, January 19). Why some life insurance could prove risky for consumers. Retrieved from https://www.cnbc.com/2020/01/17/why-some-life-insurance-could-prove-risky-for-consumers.html
  3. National Funeral Directors Association. (2019, December 19). 2019 NFDA General Price List Study Shows Funeral Costs Not Rising As Fast As Rate of Inflation. Retrieved from https://nfda.org/news/media-center/nfda-news-releases/id/4797/2019-nfda-general-price-list-study-shows-funeral-costs-not-rising-as-fast-as-rate-of-inflation
  4. Commonwealth of Massachusetts Division of Insurance Consumer Service Unit. (n.d.). Life Insurnace Basics. Retrieved from https://www.mass.gov/service-details/life-insurance-basics
  5. CNN Money. (n.d.) How big should my life insurance policy be? Retrieved from https://money.cnn.com/retirement/guide/insurance_life.moneymag/index11.htm
  6. National Association of Insurance Commissioners. (n.d.). Decided you need life insurance? Ask these questions before you buy. Retrieved from https://content.naic.org/consumer/life-insurance.htm
  7. Texas Department of Insurance. (n.d.). Do you need life insurance? Retrieved from https://www.tdi.texas.gov/tips/life-insurance.html