Life insurance is one of those things people know they should have and then put off because the numbers feel abstract. How much is enough? $250,000? $1 million? Here’s a way to work out a figure grounded in your actual situation.
First: who needs life insurance at all?
Life insurance is for people who’d leave someone financially worse off if they died. That usually means:
- Parents of minor children
- Anyone whose spouse or partner depends on their income
- Stay-at-home parents (replacing childcare and household work is expensive)
- People with co-signed debts or a mortgage someone else would inherit
A single person with no dependents often doesn’t need much, if any.
Why term life is the default for most families
Term life covers you for a set period — commonly 10, 20, or 30 years — and is far cheaper than permanent insurance for the same coverage. Most people need coverage while kids are young and the mortgage is big, not forever. We compare the options in whole life vs. term life insurance.
The quick rule of thumb
Many advisers use 10 to 12 times your annual income as a starting point. It’s fine for a ballpark, but it ignores debts, savings, and how many years your family would need support. A more detailed method is below.
A needs-based calculation
Add up what your family would need:
- Income replacement: your take-home pay × the number of years your family would need it (for example, until your youngest finishes school).
- Debts: mortgage balance, car loans, credit cards, private student loans.
- Future big costs: college, childcare.
- Final expenses: funeral and related costs, often $10,000 to $15,000.
Then subtract what’s already available:
- Savings and investments (excluding retirement money your spouse will need later)
- Existing life insurance, such as group coverage at work
- Expected Social Security survivor benefits — you can estimate them through your my Social Security account
The gap is your coverage need.
An example
Alex is 34, takes home $58,000 a year, and has two kids aged 2 and 5. Alex’s partner works part-time.
- Income replacement: $58,000 × 16 years = $928,000
- Mortgage: $260,000
- College help: $80,000
- Final expenses: $15,000
- Total needs: $1,283,000
- Minus savings ($40,000) and work life insurance ($116,000): $156,000
- Gap: about $1.13 million
Alex might reasonably buy a $1 million to $1.25 million, 20-year term policy. Survivor benefits could reduce that further. At Alex’s age and in good health, a policy like that is often more affordable than people expect.
Choosing the term length
Match the term to your longest obligation. If your youngest is 2, a 20-year term gets them through college age. If your mortgage has 28 years left, a 30-year term may make sense. Some people “ladder” policies — say, a 30-year and a 15-year — so coverage steps down as needs shrink.
Don’t rely only on work coverage
Group life through your employer is usually one or two times your salary — rarely enough — and it typically ends when you leave the job. Treat it as a bonus, not your foundation.
Getting covered
- Get quotes from several highly rated insurers.
- If you’d rather skip the medical exam, no-exam life insurance is an option, though it can cost more.
- Name beneficiaries carefully, and update them after marriage, divorce, or a new child.
- Don’t overlook disability insurance — you’re more likely to be unable to work during your career than to die young.
Your state insurance department can confirm an insurer is licensed; the NAIC has a lookup tool and consumer guides.
Bottom line
Add up what your family would need, subtract what they’d already have, and buy enough term life to close the gap for as long as people depend on you. Revisit it when your life changes — a new child, a new house, a big raise.
