Buying life insurance can bring up many questions. How much do you need? Is it expensive? What if your needs change? Luckily, our life insurance calculator can help show how much you may need and how to choose the right plan for your family.
How much life insurance do you need?
Choosing the right amount of life insurance can feel complicated. Purchase too much, and you could be stuck with years of higher-than-needed premiums. Choose too little, and you may leave your dependents without enough after you’re gone. The ideal life insurance payout should replace your income, cover the cost of funeral or memorial services, and potentially pay for long-term care in case of a terminal illness.
Our life insurance calculator draws on important factors to calculate an estimate, including your age, gender, relationship status, and dependents. Let’s dig into those factors:
- Age — Your age when you apply for life insurance can affect how many years of coverage you’ll need—and how much you’ll pay in premiums.
- Gender — Women tend to live longer than men. The average age of death helps determine how many years of coverage you might need.
- Relationship status — If you’re married or in a domestic partnership, you may share financial responsibilities with your partner. If you die, your partner will shoulder a more significant financial burden, so the coverage you need increases.
- Number of children — Children are a blessing, but they also come with a lot of expense. Factoring in how many children you have, and their ages, can help estimate the cost of raising them, including potential college costs.
- Annual salary — Knowing how much money you need to replace is one of the most critical factors. To determine how much life insurance coverage you need, the calculator multiplies your annual income by the years your income may need to be replaced, along with whether you’re sharing expenses with a partner.
Estimate your life insurance needs
There’s no set standard for how much life insurance you need—it depends on your budget and how much income you want to provide for your family after your passing. The first step to finding out how much you can afford is getting a quote.
Our calculator can give you a good idea of how much life insurance you need, but it’s just a starting point. Chatting with a professional can provide more specific advice. Start your journey by entering your information below.
How are premiums calculated?
Your premiums are based on how much coverage you choose and how long you’ll have the policy. The main aim is to replace lost income, but you might also have other obligations to cover, like credit card debt, a mortgage, or future college costs. More coverage generally means higher premiums.
Use a calculator to tally up ongoing and anticipated expenses (and how it’ll affect the amount of coverage you want). Accounting for all those expenses can help give you a more accurate picture of your future financial needs. Suppose you carry a considerable amount of debt—that could affect how much coverage you want and the premium.
Life insurance can also be a way to leave an inheritance to your dependents. If you’re thinking of using your death benefit as a way to give a financial gift to your family, you’ll want to add a bit more to your total coverage number.
Here are two ways to think about how much coverage you’ll need.
DIME
The DIME (debt, income, mortgage, education) method tailors your coverage needs to your particular situation. If you have a big mortgage, DIME accounts for that. On the other hand, if you own your home outright or rent, that’s also accounted for, so you won’t take out coverage you don’t need.
Income x 10
Another way to estimate your life insurance needs is to multiply your current income by 10. This simple method can give you a number to start with, but you may need to customize it a bit. For instance, it doesn’t consider educational costs or additional debts. You could add a lump sum per child to cover educational costs or other expenses like gifts, an existing mortgage, or other debt.
How do you save on life insurance premiums?
There’s more than one way to find a life insurance policy that fits your goals and budget. For some, term life insurance, which offers coverage for a defined period, is enough. For others, whole life insurance, which includes both a death benefit and cash value account that grows over time, provides greater comfort. Want the benefits of both? No problem. You can hold several different policies at the same time.
Term vs. whole life insurance
Term life insurance offers coverage for a specific amount of time in case of death. The term is determined by your age when you begin your policy, and how much of your working life you want to be able to replace. Once that time has expired, you’re no longer covered.
People tend to buy term life insurance to cover their most productive working years or when they have younger children to support. Term life insurance is more affordable than whole life, especially when you are younger.
Whole life insurance is a type of permanent life insurance policy that doesn’t expire and offers benefits beyond the death benefit. As long as the premiums are current, you’re covered. In addition to providing a death benefit, many whole life plans offer a cash value option that grows in value over time. The cash value acts like an investment or savings you can draw on for a tax-free loan or withdrawal while you live. The premiums for a whole life policy are more expensive.
There are benefits to both types of life insurance. Some people have multiple policies to cover different areas of their lives. A term life insurance policy could cover the cost of paying off your mortgage, while a whole life policy could provide an inheritance for your children or grandchildren.
Another consideration is how your life insurance needs may change over time. If you have more children or pay off a mortgage, you may need more or less coverage. Also, as your salary increases, you should increase your coverage or add another policy to account for the additional income. You may want to discuss your insurance needs with a financial professional at different times in your life to make sure you have the coverage you need.
Author Details
Rachel C. Murphy has written about personal finance for Investopedia, Forbes, and Money, among others.
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