Life Insurance: How Much of it Do You Need?

Jason DanaWritten by Jason Dana, Co-Founder and Managing Partner

young family grocery shopping togetherHaving the right amount of life insurance coverage is essential. It allows you to have peace of mind, knowing that your family will be safe in the event you are no longer around.  

Proper life insurance planning guarantees that your family won't have to sell their home, work two jobs, and struggle to pay bills with you gone. Additionally, life insurance can make sure that your children have the money necessary to attend college even if you aren't there to see them off.

But how can you be sure that you have enough life insurance coverage? How much life insurance do you need?

In this guide, we explain all you need to know about calculating your life insurance needs, and how much you will need for each major stage throughout your lifetime.

Quick Article Guide

Here’s what we'll cover in this post:

Get Your INSTANT Quote

Compare from 63 providers

  • $50,000
  • $100,000
  • $150,000
  • $200,000
  • $250,000
  • $300,000
  • $400,000
  • $500,000
  • $600,000
  • $700,000
  • $750,000
  • $800,000
  • $900,000
  • $1,000,000
  • $1,500,000
  • $2,000,000
  • $3,000,000
  • $4,000,000
  • $5,000,000
  • $10,000,000
  • 10 Years
  • 15 Years
  • 20 Years
  • 25 Years
  • 30 Years
  • 35 Years
  • 40 Years
  • Lifetime
  • Instantly Compare Quotes
  • No Obligation
  • It Takes Less than a Minute

How Can I Calculate How Much Life Insurance Coverage I Need?

There are two main ways you can calculate your life insurance needs:

    • Simple Income Replacement
    • Multi-variable Approach
We went much more in depth on these methods here. To summarize, these calculation methods really depend on two major factors: dependents, and debt.

Basically, with the simple income replacement model, if you are only concerned with replacing your income for your family in the event of your untimely death, all you need to do is calculate how many years they will depend on your income, how much they need per year, and then multiply it together to get the total amount of money your policy should have as a Death Benefit.

However, if you are like most Americans, this model probably won’t cut it, because you have debts on top of this existing income that need to be accounted for in the event of your death. You probably will also want to factor in things such as paying for your kids to go to college, paying off your mortgage, long term care costs for your remaining spouse, and more. This is where the Multi-variable Approach comes into play.

Usually, we recommend that in order to figure out how much life insurance coverage you need, you work with an independent agent. BUT, because so many people have this same problem, we decided to make this easy life insurance needs calculator for the multi-variable approach:

Free Life Insurance Coverage Need Calculator Tool

What Should I Take Into Consideration When Calculating My Life Insurance Needs?

In order to figure out how much life insurance coverage you need there are a few important factors that you should take into consideration in addition to the basic income needs of your family.

1. Financial Stability for Your Family

Say you bring home $50,000 per year and your spouse brings home the same. If you pass away, your spouse might be able to increase the number of hours worked, but it wouldn't necessarily be possible to compensate for the $50,000 loss from your income.

In order to compensate for this, your life insurance coverage should factor in the following costs:

    • Replacing lost income for a certain number of years
    • Paying for your spouse to return to school in order to receive more education (if necessary)
    • Costs of nanny, room, board, lost income, etc… if your spouse goes back to school
One way or another, this income will have to be replaced in order for your family to maintain the same standard of living. This can come in many forms, but no matter what, it will cost money. For people with families, accounting for these costs with your life insurance policy should be your #1 priority.

2. Factor in Your Existing Debt

When trying to figure out how much life insurance coverage you need, take into consideration your existing debt. The most common debts that people have includes:

    • Mortgage loans
    • Credit card debt
    • Car loans
    • Medical bills
    • Small business loans
    • Student loan debt
While this debt may not be something you think about often in your daily routine, as it has been factored into your monthly expenses, without your income, these bills may be too much for your remaining spouse to handle.

In order to ensure the financial security of your family after your death, it is very important to include existing debt into your life insurance needs.

3. Your Current Health vs. Future Health

Look, none of us like to admit it, but we are getting older every single day. And typically, with old age, comes more health problems. Ultimately, health problems affect the amount, and types of life insurance coverage you can get.

In order to make sure you provide your family with the right amount of life insurance coverage, it is essential that you factor in the way age can affect your bills.

For Example: Long Term Care is a common additional rider many companies offer, which supplements your income with your death benefit in the event that you require long term assisted living care.
Bills like this can cost families upwards of $6,000 - $10,000 per month on average. On top of the fact that your income will no longer be dependable in this situation, it is easy to see how this can catch a family by surprise and really cause financial turmoil.

So, when purchasing a life insurance policy, you always want to factor in that one day, you or your spouse, or potentially both of you may need Long Term Care.

There are two main ways you can do this:

More often than not, adding a LTC Rider to your life insurance policy will be enough, but for some people who have policies that do not allow for this rider, or who need supplemental coverage, there are policies that are strictly designed for LTC needs.

Learn More: If you are interested in learning more about Long Term Care life insurance coverage, this guide will tell you everything you need to know. 

4. Income Need of Dependents

When trying to calculate how much life insurance coverage you need, be sure to also consider the financial needs of your dependents. This includes your spouse, children, and anyone else that depends on your income.

First and foremost, you should consider basic income replacement. This can be calculated by taking the the number of years you have left until you retire and multiplying it by your annual salary.

After this, you should consider costs of monthly and annual bills such as:

    • Mortgage
    • Utilities
    • Car Payments
    • Other Insurance
    • Food
    • Etc...
Next, you want to factor in costs for your children. Consider projected costs like:

    • Sports
    • College Tuition
    • Medical Bills
Also, be sure to consider the age of your children and how long they will need to be provided for in the event of your sudden death. For each of your kids, you want to calculate out the cost through at least age 18, if not through college.

Learn More: For more on managing and understanding how to leave an inheritance with your life insurance, this article goes more in depth.

5. Potential Disability or Illness

Another unpleasant reality that we probably never think about in our daily routine is the possibility of becoming disabled or severely ill.

While life insurance policies pay out in the event of your death, an illness or disability can exist for years before it finally takes you. This often leaves family members with lost income, increased bills, and no way to pay for it.

As a result, many life insurance policies offer a free accelerated death benefit or ABD Rider, that allows the insured to access a portion of their life insurance policy’s death benefit while they are still alive - in the event of a terminal illness. This money can be used for:

    • Medical bills
    • Treatment/time off work to recover
    • Paying off the house
    • Taking a once in a lifetime vacation
    • Etc...
There are also riders that cover for Disability, and Accidental Death. Each of these riders often payout in multiples of the original policy death benefit, but tack on additional monthly premium to your policy.

When you don't have life insurance and become terminally ill, you have very limited options available to you - and they are costly, for very little coverage.

These are just a few examples of why understanding life insurance policy riders is essential to figuring out how much life insurance you need. 

Learn More: If you or a loved one has become terminally ill, and is in need of life insurance coverage, there are still policy options available. Read more here.

6. Creating an Estate or Trust

Should you wish to create an estate, a permanent life insurance policy can be purchased to create a trust or an estate when you pass away. The most common are:

    • Special Needs Trust
    • Irrevocable Life Insurance Trust (ILIT)
With an ILIT, the money is held in trust until you pass away. The appointed trustee then uses money to pay IRS/State, to settle tax obligations to prevent surviving family from selling assets to pay IRS.

With a Special Needs Trust, money is used by trust to provide a source of income to a special needs child without affecting their needed government benefits (if money is left behind as cash and not in trust, it is considered an asset by the IRS and could cause cancellation of Government benefits).

There are plenty of other reasons that you may want to establish a trust. For instance; to protect financial assets such as real estate, valuable possessions, or to pass down a business to a beneficiary.

Whatever your reason may be, whole life insurance policies offer a unique and highly secure way to create unbreakable trusts, that will be fought for on behalf of billion dollar insurance corporations.

Looking to learn more about establishing a trust with life insurance? This comprehensive guide will help you get started.

7. Accumulating Cash Value - Permanent Life Insurance 

Life insurance can also be used as an investment vehicle, and overtime you can use your policy to accumulate cash value. Permanent life insurance policies allow you to do this. 

This is essentially a separate account which you can borrow against, interest free. Any additional funds in this account are paid out with the death benefit in the event of your death.

The risk with these policies is that if the loan doesn’t get repaid, your family will lose the coverage they need. Also, if the market doesn’t perform well, your policy could become underfunded or your cash value could be eaten up by rising premiums. Universal Life policies have an adjustable cost of insurance (COI) or cost or insurance that can rise at anytime.

Interested in learning more about permanent life insurance policies? Check out this comprehensive guide that will teach you everything you need to know about the different types of policies.

8. Leaving a Legacy

You can choose to leave behind an inheritance for your children or grandchildren to help with college tuition, buy a first home, etc. This can also be used to settle any IRS or State levied inheritance or estate taxes.

Remember, life insurance is not subject to estate or inheritance taxes unless your estate (all of your assets) is worth more than the Federal Exemption of $12.06M. (less than .5% of the US) as of 2022.

This type of life insurance coverage typically comes in the form of a rider or an additional policy, which are both very cheap. Most policies like this go up to about $50,000 in coverage. However, companies like AIG and Gerber have specific policies designed for insuring children and grandchildren.

The way this works is that throughout their life (until age 18), the children are insured by the policy, which will payout to a beneficiary in the event of their death. During this time, the premiums accumulates cash value. Once the child turns 18, they can use the policy to their advantage in one of 2 ways:

    • Use the cash value accumulated to fund college, etc…
    • Upgrade the policy in order to get cheap coverage from a young age

9. Consider Future Needs

When figuring out how much life insurance you need, it is also important to factor in how much your needs may change over time. Consider things like:

    • A new home
    • More children
    • Changes in health
    • Retirement planning
    • And much more…
All of these affect life insurance needs in the future. Because a lot of this can be unforeseen, or blurry at best during the time of purchasing life insurance, there are a few techniques you can use in order to add more coverage as needed.

One of the main ways to account for these lifestyle and family changes is to layer your term life insurance. This is one of our best tips for saving money on life insurance. For more information on great tips like this, check out this helpful guide.

How Much Life Insurance Do You Need at Each Stage of Life?

At each stage in life, there are different levels of coverage best suited for you. There are also different companies that favor different age groups. Understanding what your general needs are in each age group, and what companies are best for you at each age makes it easier to calculate your life insurance needs.

Age GroupCoverage Needed5 Best Companies
20’s

  • Student loan protection
  • Income replacement if you have dependents
  • Mortgage protection if you own a house
  • SBA loan collateralization for young entrepreneurs
  • Lock in 40 year term from Banner and lock-in low rates for future
1. SBLI (guaranteed no medical exam products with competitive rates)

2. Sagicor (very inexpensive no exam insurance - sometimes less than companies that require an exam)

3. Banner Life (Inexpensive rates, 35 and 40 year terms)

4. Pacific Life - (as little as 50k available, flexibility with income requirements for people collecting retirement or social security)

5. Transamerica (Small face amounts as low as 25k may be perfect for student loans, low rates)

30’s

  • Student loan protection
  • Income replacement if you have dependents
  • Mortgage protection if you own a house
  • SBA loan collateralization for young entrepreneurs
  • Lock in 35 or 40 year term from Banner and lock-in low rates for future
1. SBLI (guaranteed no medical exam products with competitive rates)

2. Sagicor (very inexpensive no exam insurance - sometimes less than companies that require an exam)

3. Protective (GUL products to age 90 or later)

4. Banner Life (Inexpensive rates, 35 and 40 year terms)

5. Lincoln - (competitive rates, lenient underwriting)

40’s

  • Provide source of income replacement for loved ones until planned retirement age
  • Mortgage protection
  • SBA loan collateralization for small business owners
  • 30 year terms still available
1. SBLI (guaranteed no medical exam products with competitive rates)

2. AIG (extremely competitive rates)

3. Protective (GUL products to age 90 or later)

4. Pacific Life - (as little as 50k available, flexibility with income requirements for people collecting retirement or social security)

5. Lincoln - (competitive rates, lenient underwriting)

50’s

  • Provide source of income replacement for loved ones until planned retirement age
  • Mortgage protection
  • SBA loan collateralization for small business owners
  • 25 and 30 year terms still available, or GUL to 90 or later may be less than 30 year term
1. Prudential (underwriting leniency, ADB rider)

2. Protective (GUL products to age 90 or later)

3. Transamerica (Long terms available for older applicants, small face amounts to 25k)

4. Pacific Life - (as little as 50k available, flexibility with income requirements for people collecting retirement or social security)

5. Banner Life - inexpensive rates, especially for diabetics and people in less than average health

60’s

  • Provide source of income replacement for loved ones until planned retirement age
  • Pension maximization
  • Mortgage protection
  • SBA loan collateralization for small business owners
  • 10, 20, 25 year terms still available, or GUL to 90 or later may be less than comparable 25 year term
1.Prudential (underwriting leniency ADB rider)

2. Protective (GUL products to age 90 or later)

3. Transamerica (Long terms available for older applicants, small face amounts to 25k)

4. Pacific Life - (as little as 50k available, flexibility with income requirements for people collecting retirement or social security)

5. Banner Life - inexpensive rates, especially for diabetics and people in less than average health

70’s

  • Pension maximization
  • Mortgage protection
  • Provide money for medical bills or outstanding debts
  • Spend retirement savings guilt free
  • 10, 20 year terms may still by available, or GUL to 90 or later may be less than comparable 15 year term
1. Prudential (underwriting leniency, ADB rider)

2. Protective (GUL products to age 90 or later)

3. Transamerica (Long terms available for older applicants, small face amounts to 25k)

4. Pacific Life - (as little as 50k available, flexibility with income requirements for people collecting retirement or social security)  

5. Banner Life - inexpensive rates, especially for diabetics and people in less than average health

Want to learn more about each of these top life insurance companies? We have taken the time to independently audit each of these companies in order to give honest feedback to you. Check out some of our reviews of their policies, customer service, and rates:

Keep in mind, that as we get older, we also have different life insurance term lengths available to us. Depending on your age, when you plan on retiring, and how long you need insurance coverage for your dependents, certain term lengths may be better suited for you than others.

For more information on choosing the best term life insurance term length at each age, check out this helpful guide.

How Much Life Insurance Coverage Do I Need at My Age?

As you have seen, quite a bit of calculation goes into knowing how much life insurance you need.

If you are looking to find out what coverage amount is right for you, the best way to do so is to use the multi-factor calculator from above.

Life Insurance Needs Calculator Tool


Why is it Important to Know How Much Life Insurance You Need?

Without the right amount of life insurance coverage, terrible things can happen.

Consider this horror story:

A man and his wife, with 4 children were not properly insured. With a substantial range in ages, one child was about to head off to college, with another just a few years behind. The other two younger children were still in grade school.

Without warning, his wife passed away from a heart defect, leaving the family devastated. While her husband earned more income than her, the life insurance policy they had taken out was one provided by their employer, and they never once checked to see if the amount of coverage was sufficient for their family’s long term needs.

Long story short, it wasn't. The first child went off to college, but as the second started her first year, the money for college tuition ran out. The remainder of the mortgage became problematic to cover, with only one income because the death benefit from her life insurance policy only lasted 3 years.

This led to the family nearly losing the house, the younger three children not having money for college and being forced to work two jobs and take out loans, and caused a great deal of strife within the family.

While this is just one example, there are many things that can go wrong when you do not have the right amount of coverage for your family. In order to avoid them, you need to make sure that you have the right amount of life insurance coverage.

Why Speaking With an Independent Agent is Essential

When it comes to assessing your life insurance needs, there is no one more qualified and reliable than an independent life insurance agent. This is because, unlike captive agents, independent agents represent dozens of the best life insurance companies, and can identify the best policies for you at each stage.

At JRC Insurance Group, we work with 63 of the best life insurance companies on the market, in order to help our clients get the best coverage possible for their specific situations.

If you would like to speak with an experienced agent that can help you calculate your life insurance needs, please give us a call, toll free at: 855-247-9555. Or, send us a message with your specific questions here, and get in touch with an expert who can help.

Get Your INSTANT Quote

Compare from 63 providers

United States of AmericaAlabamaAlaskaArizonaArkansasCaliforniaColoradoConnecticutDelawareFloridaGeorgiaHawaiiIdahoIllinoisIndianaIowaKansasKentuckyLouisianaMaineMarylandMassachusettsMichiganMinnesotaMississippiMissouriMontanaNebraskaNevadaNew HampshireNew JerseyNew MexicoNew YorkNorth CarolinaNorth DakotaOhioOklahomaOregonPennsylvaniaRhode IslandSouth CarolinaSouth DakotaTennesseeTexasUtahVermontVirginiaWest VirginiaWisconsinWyoming
Choose Your State to Begin

Jason Dana

Jason Dana

Co-Founder and Managing Partner

Jason offers more than a decade of life insurance experience to JRC where he is a co-founder and managing partner. He specializes with helping clients who are considered a “high risk" for life insurance by finding the most affordable options for coverage available to them. Outside of work, Jason enjoys surfing, traveling, and spending time with friends and family.

Ask Our Experts

Leave your question below and one of our insurance agents will give you a detailed answer.

Get Your INSTANT Quote

  • $50,000
  • $100,000
  • $150,000
  • $200,000
  • $250,000
  • $300,000
  • $400,000
  • $500,000
  • $600,000
  • $700,000
  • $750,000
  • $800,000
  • $900,000
  • $1,000,000
  • $1,500,000
  • $2,000,000
  • $3,000,000
  • $4,000,000
  • $5,000,000
  • $10,000,000
  • 10 Years
  • 15 Years
  • 20 Years
  • 25 Years
  • 30 Years
  • 35 Years
  • 40 Years
  • Lifetime
Don't worry, we won't sell your information. By submitting an online insurance quote request, you are providing JRC Insurance Group with your prior express and written consent to call you at the cell phone number or residential phone number provided. Final rates are based on eligibility. You can also reach us toll-free at 855-247-9555.

Compare from 63 providers

Get Your INSTANT Quote

  • Excellent
  • Good
  • Average
  • Fair
  • 10 Years
  • 15 Years
  • 20 Years
  • 25 Years
  • 30 Years
  • 35 Years
  • 40 Years
  • Lifetime
  • $50,000
  • $100,000
  • $150,000
  • $200,000
  • $250,000
  • $300,000
  • $400,000
  • $500,000
  • $600,000
  • $700,000
  • $750,000
  • $800,000
  • $900,000
  • $1,000,000
  • $1,500,000
  • $2,000,000
  • $3,000,000
  • $4,000,000
  • $5,000,000
  • $10,000,000
  • Alabama
  • Alaska
  • Arizona
  • Arkansas
  • California
  • Colorado
  • Connecticut
  • Delaware
  • Florida
  • Georgia
  • Hawaii
  • Idaho
  • Illinois
  • Indiana
  • Iowa
  • Kansas
  • Kentucky
  • Louisiana
  • Maine
  • Maryland
  • Massachusetts
  • Michigan
  • Minnesota
  • Mississippi
  • Missouri
  • Montana
  • Nebraska
  • Nevada
  • New Hampshire
  • New Jersey
  • New Mexico
  • New York
  • North Carolina
  • North Dakota
  • Ohio
  • Oklahoma
  • Oregon
  • Pennsylvania
  • Rhode Island
  • South Carolina
  • South Dakota
  • Tennessee
  • Texas
  • Utah
  • Vermont
  • Virginia
  • Washington
  • West Virginia
  • Wisconsin
  • Wyoming
  • January
  • February
  • March
  • April
  • May
  • June
  • July
  • August
  • September
  • October
  • November
  • December
  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 2002
  • 2001
  • 2000
  • 1999
  • 1998
  • 1997
  • 1996
  • 1995
  • 1994
  • 1993
  • 1992
  • 1991
  • 1990
  • 1989
  • 1988
  • 1987
  • 1986
  • 1985
  • 1984
  • 1983
  • 1982
  • 1981
  • 1980
  • 1979
  • 1978
  • 1977
  • 1976
  • 1975
  • 1974
  • 1973
  • 1972
  • 1971
  • 1970
  • 1969
  • 1968
  • 1967
  • 1966
  • 1965
  • 1964
  • 1963
  • 1962
  • 1961
  • 1960
  • 1959
  • 1958
  • 1957
  • 1956
  • 1955
  • 1954
  • 1953
  • 1952
  • 1951
  • 1950
  • 1949
  • 1948
  • 1947
  • 1946
  • 1945
  • 1944
  • 1943
Don't worry, we won't sell your information. By submitting an online insurance quote request, you are providing JRC Insurance Group with your prior express and written consent to call you at the cell phone number or residential phone number provided. Final rates are based on eligibility. You can also reach us toll-free at 855-247-9555.
Better Business Bureau logo
★★★★★Read Reviews
Google logo
★★★★★Read Reviews
Secure Connection logo
★★★★★Learn More