How much life insurance do I need? (2024)

FAQs

How much life insurance do you actually need? ›

You can also use this term life insurance calculator to estimate your need and get a quote, or use a rough estimation method based on your expected earnings. Consider getting up to 30X your income between the ages of 18 and 40; 20X income at age 41-50; 15X income at age 51-60; and 10X income for age 61-65.

Another way to calculate the amount of life insurance needed is to multiply your annual salary by the number of years left until retirement. For example, if a 40-year-old currently makes $20,000 a year, they will need $500,000 (25 years × $20,000) in life insurance.

A $500,000 life insurance policy may provide enough coverage to take care of your family and expenses like mortgage and kid's college costs if you die unexpectedly.

A general rule of thumb is that you should have five to 10 times your annual salary in life insurance coverage. By that rule, you only need $2 million in coverage if you make $200,000 to $400,000 per year.

The simplest and most basic method most insurance and financial professionals recommend is to buy at least 10 times your annual income in life insurance. For example, if you earn a salary of $50000 and multiply it by 10, you should consider buying at least $500000 in life insurance.

If you're experiencing financial difficulties or your life insurance policy has fulfilled its primary need to protect you when you need it most, such as protecting your mortgage payments until you pay off your home, you may find that ending your policy is the best course of action.

Other things to consider

A very rough rule of thumb is that you need cover worth about 10 times the salary of the highest earner in the household. The amount should be enough to maintain a similar standard of living for your loved ones.

If you only need coverage for a few years while your children are growing up, for example, then term life insurance may be the right choice. But if you want lifetime coverage and the ability to build cash value, then consider whole life insurance.

Retiring at 40 with $2 million is possible, though it is a lofty goal, especially if you don't have a large inheritance or some other windfall. But it can be done if your income is high sufficient and if you are aggressive with your savings strategy.

What are the negatives to buying term life insurance? ›

A disadvantage of term life insurance is that it doesn't build cash value, meaning it doesn't include a savings account to borrow or withdraw from. If you cancel a term policy, you don't get any money back unless you get a policy that offers a return of a premium feature, which comes with higher costs.

There are many reasons why financial advisors might consider selling life insurance as part of the services they offer their clients. These include the ability to better meet their clients' needs by providing more comprehensive wealth planning services and the opportunity to earn commissions.

And, while there is a wide range of coverage limits, a $100,000 life insurance policy is a common choice for many people. That's because a policy with a $100,000 benefit amount offers a significant payout to beneficiaries — allowing them to take care of the necessary expenses that arise after you're gone.

It's recommended that you have enough coverage to pay off all your debt, about 10 to 15 times your annual income, and enough to pay for anticipated expenses, like your children's education. If you have more than that total amount, you're probably overinsured.

A common rule of thumb is having coverage 10-15 times your annual income. Dependents: The number of people financially dependent on you, their age, and their life goals (like higher education or marriage for children) should be considered when deciding the coverage amount.