How Much Life Insurance Do I Need? Use This Calculator

It’s hard to pinpoint how much life insurance you should buy down to the penny, but you can make a good estimate by using our life insurance calculator below.

In general, you should add up your long-term financial obligations, such as mortgage payments or college fees, and then subtract your assets. The remainder is the gap that life insurance will have to fill.

This simple life insurance calculator uses your existing assets and debts to figure out how much coverage you need.

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For a quick life insurance estimate, follow this equation: financial obligations minus liquid assets.

Step 1: Add up the following items to calculate your financial responsibilities.

• Your annual salary multiplied by the number of years you want to replace that income.

• Your mortgage balance.

• Any other debts.

• Any future needs such as college fees and funeral costs.

• The cost to replace services that a stay-at-home parent provides, such as child care.

Step 2: From that total, subtract liquid assets such as savings, non-retirement investment accounts, college funds and current life insurance policies. The number you’re left with is the amount of life insurance you need.

Note that liquid assets are funds you can access quickly without a penalty. Assets such as your house and car don’t count because they could take a long time to sell. Don’t include your 401(k) or other retirement accounts either if you’d have to pay a penalty to access the funds.

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Below are a few more approaches to determining your life insurance needs. These methods are better than a random guess but often fail to account for important parts of your financial life.

Use the life insurance calculator above to get a better idea of how much coverage you need, and then compare that value to these estimates.

1. Multiply your income by 10 🔢

The “10 times income” guideline is often shared online, but it doesn’t take a detailed look at your family’s needs, nor does it consider your savings or existing life insurance policies. And it doesn’t provide a coverage amount for stay-at-home parents, who should have insurance even if they don’t make an income.

The value of a stay-at-home parent’s work can be difficult to calculate. You can start by estimating what you would have to pay someone to provide services, such as child care, that a stay-at-home parent might provide.

2. Buy 10 times your income, plus $100,000 per child for college 🎓

This formula adds another layer to the "10 times income" rule by including coverage for your child’s education. College and other education expenses are an important part of your life insurance estimate if you have kids. However, this method still doesn’t take into account all of your family’s needs, assets or any life insurance coverage already in place.

» MORE: The best family life insurance

3. Calculate your “human life value”

The human life value or human life calculation is a way to estimate your income based on what you might earn in the future. There are various ways to do this, but one method is to take the average annual income in your field for a younger professional or tradesperson under 40 and multiply it by 30.

For those over 40, consider multiplying the average annual income for experienced professionals or those at the leadership level in your profession or trade by 20 instead.

4. Use the DIME formula 🪙

DIME stands for debt, income, mortgage and education — four areas that should be part of calculating your life insurance needs:

• Debt and final expenses: Add up your debts, other than your mortgage, plus an estimate of funeral expenses.

• Income: Decide how many years your family would need support, and multiply your annual income by that number.

• Mortgage: Calculate the amount you need to pay off your mortgage.

• Education: Estimate the cost of sending your kids to school and college.

By adding all of these ballpark figures together, you can get a well-rounded view of your needs. While this formula is more thorough, just note it doesn’t account for the life insurance coverage and savings you may already have. It also doesn’t consider the unpaid contributions a stay-at-home parent makes.

» MORE: What does life insurance cover?

5. Replace your income, plus add a cushion 💰

With this method, you’ll buy enough coverage to replace your income without spending the payout itself. Instead, your beneficiaries can save or invest the lump sum and use the resulting income to pay expenses.

To calculate the amount, divide your annual income by a conservative rate of return, such as 4% or 5%. As an example, let’s assume your income is $50,000 and you estimate a 5% rate of return. The math works like this: $50,000 divided by 5% equals $1 million. So if you buy a million-dollar life insurance policy and the payout was put into a bank account earning 5% annual interest, it could generate $50,000 a year.

When your dependents no longer need the income to meet daily living expenses, the $1 million can go toward other goals such as college tuition, home buying or retirement.

To use this method for a stay-at-home parent, first add up how much it would cost each year to pay someone else to handle that parent’s tasks. Then plug that number into the formula as if it were the stay-at-home parent’s annual income.

Keep these questions in mind to help you calculate life insurance coverage needs:

Why do you need life insurance?

Think of life insurance as part of your overall financial plan. That plan should take into account future expenses, such as college costs, and the expected growth of your income or assets. Be prepared to reassess your life insurance needs in the future as your situation changes.

Who will your life insurance payout support?

Talk with your family. How much money does your spouse think the family would need to carry on without you? Do your estimates make sense to them? For example, would your family need to replace your full income or just a portion?

How long will you need life insurance?

Consider buying multiple, smaller life insurance policies. You can buy more than one life insurance policy to vary your coverage as your needs ebb and flow. For instance, you could buy a 30-year term life insurance policy to cover your spouse until your retirement and a 20-year term policy to cover your children until they graduate from college. This strategy is called “laddering.”

Ultimately, make sure to buy what you can afford. Say you’ve estimated that you need $500,000 of life insurance, but that amount of coverage isn’t in your budget. It’s better to buy a smaller policy than nothing at all and get more coverage later as your finances allow.

Term life insurance lasts for a set period of time, such as 10, 20 or 30 years. So, when calculating coverage, think about how long you want your term policy to last.

For example, if you need life insurance to cover your income until your kids go to college, you may need a 20-year policy. However, if you want to cover your mortgage, you may need a 30-year term policy.

Whole life insurance can last your entire life, so you’ll want to take into account final expenses, such as burial costs. Your insurance needs may change over your lifetime, so consider any future plans like buying a house or having a family.

Use the tool below to determine which type of coverage is best for you.

Ready to buy a policy? Compare life insurance quotes to estimate your costs.