How much life insurance should you have?
- A common rule is 10x your salary, but personal factors matter.
- Think about debts, future expenses, and income replacement.
- Workplace policies often fall short of full coverage.
How much life insurance is right for you?
It’s a common question, and the answer is easier than you might think. Many default to an agent’s recommendation or the cheapest option, but a better approach is to start by multiplying your income by 10 and then factor in your expenses, debts, and assets for a more accurate estimate.
If that sounds like a lot, don’t worry—we’ll break it down into simple steps so you can confidently determine the right amount of coverage in just a few minutes.
Life insurance is most commonly needed if others rely on your income, but there are many other reasons to consider it. If you plan to get married or have a baby, life insurance can provide financial security for your growing family. It can also protect loved ones from inheriting debt, whether from a mortgage, private student loans, or other outstanding balances. While it’s not the most fun topic, having coverage ensures your loved ones won’t be left with unexpected financial burdens.
How to calculate the right amount of life insurance
How much does it cost your family to live?
- Use a monthly budget plan or look at credit card and bank statements if you're unsure how much you spend on particular things.Â
- Consider mortgage, utilities, food, clothes, etc. Essentially, this is everything you spend money on to keep your family happy and healthy.Â
- You can also add in things like your child's college education or funeral costs if another family member were to pass away.
Add up all of your liquid assets that could be sold/cashed in, etc. This might include things like:
- Current life insurance policies
- College savings funds
- Savings accounts or investments
- Vacation homes or extra vehicles
How much income do you bring to your family? Consider your current salary plus any additional income you may earn (1099 work or other "side hustles" that help provide for your lifestyle)
- How many years would you want to replace that income? Term life insurance is usually offered from 10 to 30 years, but this time frame is a personal decision.
Putting it all together
Let's take a look at a sample family to see how all this comes together for an life insurance estimate.
Alex makes $80,000 per year at his job. His wife is currently at home with their toddler, so his income supports the family entirely. If anything were to happen to him there would be a substantial need for life insurance. Alex wants to make sure his wife and child have a decade of financial support. See the breakdown in the below table.
| Income replacement (10 years x $80,000) | $800,000 |
| Mortgage balance | $200,000 |
| Car loans and credit cards | $15,000 |
| College fund for child | $100,000 |
| Final expenses | $15,000 |
| Existing savings | (-$50,000) |
| Total recommended coverage | $1,075,000 |
Stay-at-home parents provide invaluable services that would be expensive to replace, including child care, meal preparation, household management, and transportation. While they may not earn a traditional salary, their contributions have real financial value. In fact, the average cost of child care alone is $11,582 per child annually, and that doesn’t account for all the other responsibilities they manage.[1] A life insurance policy for a stay-at-home parent helps cover those costs, keeping your family stable during a tough transition.
Does employer life insurance provide enough protection?
It depends. It's easy to set up during onboarding or open enrollment, comes at a lower group rate, and often requires no medical exam. But there are key drawbacks to consider:
- It may not be enough:Â Usually, employee coverage is between 1 and 10 times your salary. If you have multiple dependents or a lot of debt to consider, that amount could be gone quickly if you were to pass away.Â
- It is connected to your job: Yes, this is obvious, but if you decide to change companies, start a new career, or if your company decides to drop this benefit, then your coverage will disappear.Â
- Increasing coverage limits could be expensive:Â It's usually an option to increase the employer-covered amount and pay the difference through your paycheck. However, if you compare the cost of that addition with an independent policy, this might be a pricey choice (despite its convenience).[2]
What is a Life Insurance Rider?
Life insurance riders are potentially valuable add-ons to your policy that provide protection in circumstances where standard coverages don't.
What type of life insurance should you buy?
There are two types of life insurance you can purchase:Â whole or permanent life insurance, which lasts the entirety of your life, and term life insurance, which expires after a fixed period of time. Not only are the price points different, but they also have a different payout structure. See details below.
- Whole or Permanent:Â These policies accrue a cash value over time, so they are often part of retirement planning. Because the payout is guaranteed, this type of plan can be more expensive.
- Term: Since these policies only last for a set number of years (ten, twenty, or thirty, for example), if you live longer, you will not receive a payout. That’s why they are often the cheaper option. These are designed to cover the years your family (or other beneficiaries) depend most on your income.Â
Whole life insurance
Whole life insurance never expires as long as premiums are paid and includes a tax-deferred savings component. It also offers potential returns during the insured's lifetime, in addition to the death benefit.
Term life insurance
Term life insurance is a more affordable option than whole life insurance, offering a death benefit for a set period with flexible term lengths to fit your needs.
Choosing the right life insurance agent is just as important as choosing the right policy. A good agent:
- Takes the time to understand your financial situation—your income, assets, tax bracket, and personal circumstances.
- Explains your options clearly.
- Provides a written plan showing how the policy fits your goals without using high-pressure sales tactics.
- Offers periodic check-ins to ensure your coverage stays relevant as life changes.
- IMPORTANT:Â Is licensed by your state's insurance department.[3]Â
The best time to buy life insurance
The best time to buy life insurance is when you're young and healthy to lock in lower rates, but major life changes—like marriage, kids, buying a home, or starting a business—also make it a smart move.
Life insurance is a good idea at any age, especially if others rely on your income. A policy can:
- Cover funeral costs
- Help with tuition for children or grandchildren
- Pay off debts like a mortgage or business loans
- Provide an inheritance for heirs
- Support a charity or foundation
However, if no one depends on your income, you have no major debts, and your savings can cover end-of-life expenses, life insurance may not be a priority. But if there’s even a chance these could be in your future, securing coverage early can save you thousands.Â
The expense of waiting
Waiting to get life insurance can cost you—especially with permanent life insurance, which builds cash value over time. The earlier you start, the more it grows, and delaying just 10 years could mean paying thousands more. Term life is also much cheaper when you’re younger, and waiting increases the risk of health issues that raise premiums or limit coverage. Buying early locks in lower rates and ensures you’re covered when it matters most.
For those choosing term life insurance, the lower cost means you can put the savings toward other financial goals. Consider building an emergency fund—especially since nearly a quarter of Americans have no savings for unexpected expenses.[4]
Life insurance coverage amounts: FAQs
Annual child care landscape analysis. Child Aware
Life insurance from your employer usually isn’t enough. Life Happens
How should I choose a life insurance agent? Insurance Information Institute
Employers can now enroll workers in some emergency savings accounts. New York Times