Life insurance calculator: How much life insurance do you need?

Most people need enough life insurance to cover the debts their family would inherit, the years of income their household would lose, and the costs that land right away, minus the savings and coverage they already have. The calculator below runs that math and gives you one figure to shop with.

The number it produces is a starting point for quotes, not a policy amount you’re locked into. Coverage is sold in set increments, so the figure rounds up to the nearest $50,000.

How to add up how much life insurance you need yourself

You can also calculate how much life insurance coverage you need yourself by using the DIME method.

DIME stands for debt, income, mortgage and education, the four obligations a policy has to cover. A mortgage statement, a pay stub and a benefits summary give you every figure it needs.

• Debt. Every balance outside the mortgage, added together — credit cards, car loans, student loans, personal loans — plus what you want set aside for funeral costs.
• Income. Your annual salary minus a year of mortgage payments and a year of minimum debt payments, multiplied by the years your family needs support. A $75,000 salary paying $1,800 a month on a mortgage and $450 on other debts leaves $48,000 to replace, which comes to $720,000 across 15 years.
• Mortgage. The payoff balance on your statement rather than what the home is worth.
• Education. The amount you want set aside per child, multiplied by the number of children.

Add those four together and two steps finish the calculation:

• Subtract your savings and any coverage you already have. Group life through work counts here, and so does an individual policy bought years ago.
• Round the result up to the nearest $50,000. That rounded figure is what you request when you ask for quotes.

Running a $75,000 household with a $250,000 mortgage, $20,000 in other debts, two children and $90,000 in combined savings and work coverage through those steps produces $1,110,000, which becomes $1,150,000 at quote time.

How do savings affect how much life insurance you need?

Savings lower the amount of coverage you have to buy, dollar for dollar, as long as your family could spend the money right away. A checking balance, a brokerage account and a dedicated college fund all count.

Retirement accounts are the judgment call. A 401(k) that has to fund a surviving spouse’s own retirement isn’t available to raise children on, so entering the full balance will understate what you need. Counting a portion of it, or none of it, gives you a more honest number.

Money that’s already spoken for stays out of the subtraction, even when the balance is sitting there.

• Your emergency fund, because it’s already committed to the job it’s there for. Subtracting it assumes a car repair or a job loss never happens again after a death.
• Home equity, because reaching it means selling the house or borrowing against it, and a family that just lost an income is rarely in a position to do either.

How many years of income should life insurance replace?

Pick the year your family stops depending on your paycheck. For parents, that’s often the year the youngest child finishes school. For a couple without children, it’s often the year a surviving partner could reach retirement savings without a penalty.

A 10-year term costs less in premium than a 20-year term at the same face amount, and it ends support while a surviving partner may still have working years and a mortgage left.

Does life insurance through work count toward what you need?

Group life through an employer counts toward your total, and the calculator subtracts it. The common amount is one or two times salary, which rarely covers a mortgage plus college on its own.

However, that coverage ends when the job does. Check whether yours can be converted to an individual policy when you leave and what that conversion costs, because a layoff at 55 with a health condition is a hard time to shop for a new policy.

How much life insurance do you need if you don’t have a family yet?

Buy 10 to 15 times your annual income if a house and a family are ahead of you rather than behind you. On a $70,000 salary that’s $700,000 to $1.05 million, which sounds oversized against your current obligations and matches what those obligations become once a mortgage and a child arrives.

Locking that coverage in early is what makes life insurance affordable. Term rates are set by your age and health at the time you apply and stay level for the whole term, so a 20-year policy bought at 28 costs less every year than the same policy bought at 38, and a health condition that develops in between can’t raise it.

Recalculate how much life insurance you need whenever you experience a major life event: 

• A mortgage replaces a guess with a real balance, and it’s usually the largest single line in the total.
• A child adds college costs and extends the years of support, often past the term you originally bought.
• A raise of any size raises the income your household would have to replace, since the standard of living rises with it.
• A divorce or remarriage changes who the money is for, which means updating the beneficiary alongside the amount.

When do you need more life insurance than a calculator suggests?

Some obligations sit outside a household calculation and need coverage of their own.

• A partner who doesn’t earn a paycheck still costs money to replace. Childcare, driving and household work get paid for out of pocket if that person dies, so run the calculator a second time for them using the annual cost of hiring that help.
• A child or adult dependent with lifelong needs changes the math entirely. Support doesn’t end at 22, and the coverage that funds it usually pays into a trust rather than to the person directly. A special needs attorney sets that structure up, and doing it in the wrong order can cost the beneficiary access to public benefits.
• A business with a partner, or a loan you personally guaranteed, doesn’t disappear at death. Those obligations get their own policy rather than a larger family policy.

When is a smaller life insurance policy enough?

Grown children, a paid-off house, and enough in retirement accounts to carry a surviving spouse all shrink the amount of life insurance coverage you need. What’s left is usually the final expenses, such as the funeral, the estate paperwork and any medical bills.

The National Funeral Directors Association puts the median cost of a funeral with viewing and burial at $8,300, before cemetery charges like the plot and the marker. A small whole life or final expense policy covers that range without the cost of a large term policy you no longer need.

What should you do once you know how much coverage you need?

Ask at least three insurers to quote the same coverage amount and the same term length. When the policies match, price is the only thing left to compare, and the same coverage can cost a few hundred dollars more a year at one company than another, which turns into thousands over a 20-year term.

If that premium is more than you can spend right now, buy the largest policy you can afford today and add a second one later. Waiting costs you on both ends, since rates go up with every birthday and a health problem that develops in the meantime can push you into a more expensive price tier or get your application turned down.

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