calculating insurance needs

How Much Life Insurance Do You Need?

calculating insurance needs

Last updated November 17, 2017

You’re thinking about purchasing a life insurance policy, but you’re wondering “How much life insurance do I need?” If you really need it, you’re also wondering what type of insurance you should buy? These questions can be kind of overwhelming to think about all at once, but the answers really aren’t that complicated.

Here are some important things to consider when calculating how much life insurance you will need.

Do You Really Need Life Insurance?

According to an Insurance Barometer Study by the LIMRA and LIFE Foundation, 83 percent of people say they haven’t purchased life insurance because it’s too expensive — yet they overestimate its true cost by nearly three times the actual amount.

First and foremost, if you have a family or others who depend on you, and you want to protect them financially (and you don’t have a ton of money in a savings account), you need life insurance. This also applies to a non-working spouse. Don’t underestimate the economic replacement cost of a homemaker. There are some estimates that place a value of $500,000 or more per year on this role with the seemingly endless list of duties that occupies a stay-at-home mom or dad’s day.

So that takes care of the question of whether you need life insurance or not. Chances are, you probably do.

What Kind of Life Insurance Do You Need?

Determining what type of life insurance to buy takes a bit of thought and some discussion with a licensed agent who will walk you through the process. As a general rule, if you want to protect your family against the loss of your business or estate taxes after you die, you might want to consider a whole life or universal life insurance policy.  If your primary intention is to protect your family against the loss of your income, you might want to look at term insurance.

How Much Life Insurance Do You Need?

You’re probably noticing a pattern—answering yes to those first two questions has you here, at the crux of the article, wondering how much life insurance you will need. This part takes the most work, but it still doesn’t have to be that complicated.

In fact, as a general rule, check out this simple Life Insurance Needs Calculator to arrive at an answer that will be pretty close to the correct answer for you. Simply follow the chart to locate your age, then multiply the Recommended or Maximum Available number by your current annual income and voila—you will have the amount of coverage you should be thinking about.

For example, if you are a 40-year-old man who makes $50,000 per year in income, and you want the recommended amount of coverage available, you will arrive at $750,000 of coverage. It’s that simple.

Again, this is a basic calculation, but it gives you a pretty good idea of what to look for. If you want to dig a little deeper before speaking with a life insurance agent about your particular situation, let’s look at a few other factors.

Calculating Life Insurance Needs: What to Consider

When purchasing a life insurance policy, surprise — it’s really not how much you need — but how much your family will need at the time of your death. This depends on a couple things:

  • How much will be needed to meet immediate obligations?
  • How much future income is needed to sustain the household?


Other than a possible balance on your mortgage, do you have any debt? If so, that probably means you are spending more money than you are earning—unless you just don’t like paying off your balances in a timely fashion, which is a bad habit to get into. So if this is the case, you will need more life insurance to pay off that debt.


How much do you spend every month? If you live by a budget, this is a pretty simple exercise you probably already have the quick answer for. You need to know how much you are spending. That aforementioned $750,000 of term coverage might seem like a big number, but in reality, it might not be enough.

Let’s say you die and your family gets the $750,000. If they invest it using an income diversity strategy and earn five percent annually, that would equal $37,500 of yearly investment income. However, if your family depends on more than $37,500 each year you will need more coverage.


If you save money each month, good for you. Plus, you might have savings from other investments besides life insurance—like bank accounts, money market accounts, mutual funds, CDs, bonds, stocks, and other assets, don’t forget those. Depending on how much you save, you will need less life insurance as a result. But make sure to take into consideration things like your retirement expenses, the college tuition expenses for your children, etc. If you already have the funding set up for those types of expenses, you won’t need more coverage. Otherwise, you guessed it, you will need more insurance.

Spouse’s Income

Let’s assume your spouse will continue working after you die. What is their annual income and how much longer do they expect to work? You will need to answer those questions while also taking into consideration their marginal tax rate—which is the rate of tax you are paying on your highest dollars of income.


Lastly, don’t forget to estimate the rate of inflation because—and this is a fact of life—the cost of living just keeps going up year after year.

Finding a Life Insurance Policy That’s Right For You

Now that you have a pretty good idea what to look for when determining how much life insurance you need—and the basic calculations that go along with it—it’s time to talk to a licensed True Blue Life Insurance agent who will walk you through the process of finding a policy that best suits your needs.

When you are ready to apply—or if you just have questions—simply pick up the phone and call 1-866-816-2100.

As an independent insurance agency, we deal with all of the top insurance companies, so we will work to get the best price for you and address any concerns you may have. We deal with the insurance companies on your behalf, and the policies are issued immediately or within 48 hours, depending on the insurance provider you ultimately choose.

Finding a life insurance policy that’s perfect for you is what we do. Let’s talk about your needs and what we can do to help you.

About Brian Greenberg

Brian started his financial career working for Metlife Insurance Company. Using his internet skills, he decided to pursue a better way to provide customers with life insurance by building a quoting engine and underwriting fulfilment process. With True Blue Life Insurance, Brian is licensed to sell life, health, and annuities throughout the United States. He is committed to constantly improving the online life insurance process.
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