How Much Life Insurance Do You Need? A Simple Way to Estimate

Add up what the family would need, then subtract what is already covered:

• Income to replace for a number of years (until the youngest child is independent, for example).
• Debts other than the mortgage.
• Mortgage balance.
• Education costs for children.
• Final expenses.

Then subtract savings and investments, and existing life insurance (including any through work).

Annual income $60,000 replaced for 10 years is $600,000. Add $15,000 of other debts, a $200,000 mortgage, $80,000 for education and $15,000 of final expenses: the total need is $910,000. With $50,000 of savings and $100,000 of existing cover, the gap is $760,000. That is the amount to discuss with a licensed adviser, not a decision by itself.

• Inflation and investment returns on the payout.
• A surviving partner’s income and any benefits.
• Employer cover that ends if you change jobs.
• Special needs, such as long-term care for a dependant.

Often yes, because childcare, cooking and household management would need to be paid for. Include an estimate of that cost as the “income” to replace.

Term insurance covers a set period, such as 20 years, and is usually simpler and cheaper. Permanent (whole or universal) insurance lasts for life and includes a savings component with higher premiums. Which fits depends on your goals and budget, so compare quotes from more than one insurer.

Revisit the number after marriage, a new child, a home purchase, a large new debt, a change in income or when debts are paid off. As the mortgage and children’s costs shrink, your need often does too.

This article is educational and is not insurance or financial advice. Talk to a licensed professional about policy types, health underwriting and pricing.