You want to be insured but you don’t want to waste your money. We get it. Life insurance is all about protecting yourself (and your family or beneficiaries), but it can be expensive. You don’t want to overpay for coverage when you could be using that money to enjoy life and create more memories with your family. However, there are many important reasons people choose to buy life insurance. Here are some guidelines to determine how much life insurance you may need.

First, Ask Yourself...

Does anyone in your life depend on you?

If the answer is yes, then you need life insurance. This is the central purpose of life insurance—to make sure your family and beneficiaries have enough to get by without you. This isn’t as simple as replacing your salary, as they’ll no longer have your expenses to cover. Instead, consider what your family will need to maintain their standard of living. Determine if that is your end goal with life insurance—a certain lifestyle may not have to be maintained, but typically people desire that their family would still have their current standard of living. If it’s only you and your partner, you may not actually need much; whereas if you have young children, you may need a lot.

Note: While many people receive some type of life insurance through their job, it’s usually a smaller amount and only in place when you're employed. Depending on your situation, you may want additional insurance.

Are your dependents financially prepared for the death of a family member?  

A family member’s death is difficult and stressful enough without added financial worry. Consider how financially prepared your family and dependents are. Would funeral costs be covered? Would there be debts to pay? Do you have significant savings? If your family is financially stable, you may not need as large of a life insurance payout. However, if you know that they’d be struggling, do what you can to prevent a financial bind.

What are expected future expenses?

Consider the life stages of your family members. Most people need a higher death benefit (payout) when their children are younger, as they want to see them through high school and college or until independence. When choosing a life insurance policy, think about their needs and expected future expenses.

What are your current finances?

Look at your current finances. Check your 401(k) plans, IRAs, 529 plan, additional retirement plans, savings, stocks, bonds and other current investments. Typically, you can subtract these values from the amount your family needs to decrease the life insurance policy. In some cases, you may include part of your house’s value, depending on whether or not your beneficiaries would choose to downsize.

Now, Determine How Much Life Insurance You Need:

  • One standard rule is to simply multiply your salary by 10, though this rule is considered outdated as it doesn’t account for a detailed look at your family’s situation or your current finances.


  • Another more in-depth process is to first determine the yearly income your family needs. Are there college expenses to add on? Debt that needs to be repaid? A mortgage or loan? Multiply that amount by the number of years they need that aid—perhaps until children are through college or until your partner is able to work again or is at retirement age. Finally, subtract your current savings, investments and retirement plans from that amount to see your death benefit.


  • Consider talking to a financial advisor or an expert if you want to double check your calculations and get another opinion. If you’re unsure about whether to purchase a term life or permanent life policy, learn more about your options here. You may have better investment opportunities and you won’t need a permanent life insurance policy with that component. Don’t forget that In the end, the choice is yours.

You’re well on your way to finding the right life insurance policy for you. Carefully consider what your actual need is and don’t overbuy. Always compare quotes. Life insurance can be complicated but knowing your options and rates can help you save.