Don't make a guess at how much life insurance you need. There are simple ways to calculate it.

One of the first steps in buying a life insurance policy is calculating how much you need. Don't be overwhelmed by the task -- there are simple ways to do it.

The short answer: Buy a life insurance amount that would allow your family to maintain their lifestyle.

The longer answer:

1. Add up the financial obligations you want covered by life insurance. This often includes:

  • The amount of income you want to "replace," which means multiplying your salary by the number of years you want to replace it
  • The balance of a mortgage
  • Other large debts others would have to pay, such as credit card debt
  • Anticipated college expenses for children
  • The cost of a funeral

2. Then subtract the existing assets your family could use for these expenses, such as savings, life insurance you already have and 529 college plans. (Some life insurance formulas include retirement savings among the assets to subtract. However, that could mean gutting retirement savings to pay for daily living expenses, so we're not including it.)

3. The total is your estimated life insurance need.

Basic life insurance needs calculation

How much life insurance does a stay-at-home parent need?

Stay-at-home parents provide substantial financial value to a family. So the loss of a stay-at-home parent can mean a large financial hit. Life insurance can be used to cover the "replacement services" for the person. To calculate this, consider the cost of services that you'd have to pay others to perform, such as house cleaning and babysitting. This number is the life insurance need of the stay-at-home parent.

Compare: Life insurance quotes

Getting help with calculating life insurance needs

  • Use online calculators: Don't feel like you need to calculate a number by yourself. There are lots of free life insurance calculators online.
  • Ask a professional: An experienced life insurance agent can help you calculate your need.
  • Unique circumstances require special help: If your financial needs are more complex, a financial planner can help. For example, if you have a special needs child who will need lifelong financial support, a financial planner can help you structure a plan, advise on a trust and find the right life insurance product.

Other ways to calculate how much life insurance you need


Annual salary x 10 Multiplying your annual salary by 10 is a quick way to guess at need, for sure. But the method doesn't address true financial obligations or the existence of assets that could reduce the need, like savings.

Human life value This method has multiple steps. It takes into account your future earnings based on salary increases. Then it subtracts your estimated income taxes and the living expenses spent on you. Then you select a rate of return (interest rate) on the remainder (this assumes your family invests life insurance proceeds and gets interest) and subtract that amount.

Here's a spreadsheet from the University of Northern Iowa that shows how to calculate human life value.

My need is WHAT?!

Don't get scared off if your life insurance need number is large -- very large. Take the median income of a male householder: $41,278 in 2016, according to the Census Bureau. Let's say he's looking for a 20-year term life insurance policy. Looking simply at income replacement of his salary for 20 years, his need is over $825,000.

If you start adding in debts and college expenses, life insurance need can quickly top $1 million.

Still, get life insurance quotes for your calculated need. People often overestimate the cost of term life insurance and put off a purchase, according to LIMRA. The industry group asked people to estimate the cost of a 20-year term life policy for $250,000 for a healthy 30-year-old man. The median estimate was $500 a year, which is more than three times the actual cost of $160 a year.

If your life insurance need amounts to more than you can afford after comparing quotes, consider buying a smaller life insurance policy. A small safety net is better than none.