How Much Life Insurance Do I Need?
Life insurance can feel like a big decision, and one of the first questions people ask is: How much coverage do I really need? Whether you're a new parent, a recent homeowner or simply planning ahead, figuring out the right amount of coverage is key to ensuring your loved ones are financially protected.
In this article, we’ll walk you through what to consider including in your life insurance plan, how to estimate your ideal coverage and the tools that can help you make a confident, informed choice.
What to include in your life insurance plan
Your life insurance policy should reflect the role you play in your family’s financial life and the future you want to protect. It can help ensure your loved ones can stay in their home, cover everyday expenses and continue working toward long-term goals, even if you're no longer there to support them.
A common starting point is to multiply your annual income by 10. While this offers a helpful ballpark figure, it doesn’t account for your unique circumstances or financial goals. To find a coverage amount that truly fits your needs, consider the factors outlined below.
Coverage timeline
Many people choose coverage that replaces their income until retirement. To find the right fit, think about how long it might take your spouse or children to become financially independent. If you're part of a dual-income household, be sure to consider the full impact of losing your income stream.
Financial responsibilities
Every household has ongoing expenses and financial obligations that would continue in your absence. If you're a stay-at-home parent, don't overlook the value of the care and support you provide, such as managing the household and caring for children.
It's also wise to think ahead. Expenses often grow over time, so choosing a slightly higher coverage amount now can help ensure your policy continues to meet your family's needs in the future.
Some of the most common expenses to include are:
- Mortgage or rent payments
- Credit card balances, student loans or other debts
- Daily living expenses
- Child care or tuition costs
Future goals
Life insurance does more than cover today’s expenses; it helps protect your long-term plans. When deciding how much coverage is right for you, think about the milestones and financial goals you’d want your policy to help support, like paying off a mortgage, funding education or ensuring your loved ones can continue building the future you envisioned together.
Common examples include:
- College tuition or other educational needs
- Funeral and burial costs
- Ongoing care for aging parents or dependents with special needs
- A financial gift to your children, grandchildren or a charitable cause
Existing resources
As you calculate your coverage needs, subtract any savings, retirement funds or existing life insurance policies that could help support your family. If you’re relying on an employer-sponsored policy, remember that those are often limited and may not follow you if you change jobs.
Need help calculating your number? Use our life insurance calculator for a quick and personalized estimate.
Choosing between term and permanent policies
The right fit often depends on your goals: If your main objective is to provide financial protection for your family in the event of an untimely death, a term policy is often the most suitable choice. If your intention is to leave a legacy for future generations or support a charitable organization, permanent coverage is generally the preferred option.
Term life insurance provides level premiums for a set term, often 10, 20 or 30 years. It’s typically more affordable and a popular choice for covering time-based needs like raising a family or paying off a mortgage.
Whole life insurance provides lifelong coverage and builds cash value over time. It can be a good option if you're thinking about estate planning, want permanent protection or want to leave a financial gift to your loved ones.
Keep in mind that your needs may change over time. Many people begin with a term policy and later add whole life coverage as their goals and financial situation evolve.
Planning for the future
Life insurance isn’t a one-time decision. As your life changes, your coverage should change too. Reviewing your policy regularly helps ensure it continues to match your goals and financial responsibilities. Planning today means peace of mind tomorrow. With the right coverage in place, you can move forward confidently, knowing the people who matter most are protected.
Still deciding between term and whole life insurance? Compare term vs. whole life policies to find the right fit for your needs.
FAQs about calculating life insurance needs
Employer-provided coverage is a valuable benefit, but it’s often more expensive than individual coverage, limited – typically just one or two times your salary – and it usually doesn’t move with you if you change jobs. That’s why many people choose an individual policy to make sure their protection is more complete.
Life insurance can still be useful without a spouse or children. It’s often less expensive to purchase when you’re young and healthy and can help cover debts, final expenses or provide a financial gift to a loved one or charitable organization.
It’s a good idea to review your coverage every few years, or anytime you experience a major life change, such as getting married, buying a home, having children or planning for retirement.
Your Policy, Policy Declarations or Amended Declarations in effect on the date of loss is the primary source of reference for your coverage, coverage limits and deductible amounts.
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ALIC15525 10/27