How Much Life Insurance Do You Need?
Financial gurus claim you need a certain amount of life insurance based on simple rules of thumb (usually 7-10 times your annual income).
Insurance salespeople have an incentive to advocate “the more, the better”.
But what's the truth?
This Life Insurance Calculator will tell you exactly how much you need based on the specifics of your personal situation so you don't under-buy or over-pay.
The truth is everyone's situation is unique. Generalized rules of thumb aren't accurate, and commission salespeople are inherently biased to sell you more than is needed.
Use this Life Insurance Calculator to get an accurate amount you can trust.
Below is additional information about life insurance to help you make a smart purchasing decision.
What Is Life Insurance?
Life insurance pays out a sum of money either on the death of the insured person or after a set period of time.
It is used to fund the future needs of your surviving family after your untimely death and resulting loss of income.
You buy life insurance by paying a monthly, quarterly or annual premium for a defined number of years to receive a defined benefit as predetermined by the life insurance contract.
When calculating your life insurance needs, the goal is to buy enough to pay for your immediate funeral expenses and still provide sufficient investment capital to financially secure your dependents after you’re gone.
Who Needs Life Insurance?
Not everyone needs life insurance.
Generally, life insurance is best purchased by people with dependents requiring ongoing financial support should you die unexpectedly resulting in loss of income.
A dependent could be your spouse, children, parents or siblings who are financially dependent on you.
If you are single without dependents, you may consider purchasing life insurance to cover your own funeral expenses or leave a legacy to your chosen charity. This is less common.
The most common need for life insurance is to provide financial security for dependents should the primary breadwinner prematurely die.
Life insurance replaces your “financial value” to your family.
After you’re gone, you will want your family to receive enough funds to support them for years until they can care for themselves. It is the responsible thing to do so your family doesn't end up indigent.
One frequently overlooked point is you may not need to provide for them in perpetuity. Dependent children should be able to care themselves after college, and your spouse may remarry or launch a new career.
You want to buy them enough time to grieve, heal, and figure out how to live constructive lives without you.
The key idea is to buy enough life insurance so they can do whatever they want with their lives, but don't buy so much that they don't need to do anything at all. It is a balance.
Benefits of Life Insurance
If you die then your children will have only one parent left. The last thing you want is for your kids to lose the other parent to a full-time job just so the family has enough money to survive.
Life insurance can buy the surviving spouse enough time to focus on the kids, not career. Your spouse won't be financially desperate so she can take a reasonable amount of time rebuilding her life without having to make all decisions based on financial desperation.
Using The Life Insurance Calculator To Make The Math Simple
Fortunately, this Life Insurance Calculator makes the process of calculating how much life insurance you need very simple. Just complete a few simple inputs and the calculator does the rest for you.
While there are many factors to consider, this calculator will prompt you with just the necessary inputs to assess the correct amount of life insurance needed for your specific situation.
As a general overview, the calculator will be figuring how much your family needs to sustain their current level of spending after paying for the immediate costs associated with your death.
That means the starting point is knowing how much money your family needs each month to support their current lifestyle. This is not an exact science, but just follow the prompts built into the calculator and it will easily solve the problem for you.
Where Do You Buy?
Now that you know how much life insurance you need, the next question is where should you buy life insurance?
Not all policies are created equal, so you'll want to consider the various alternatives before purchasing your life insurance policy.
A good insurance salesperson can help you find the right insurance policy tailored to your needs. Read the policy carefully so that you understand all charges for buying a new policy, terminating an existing life insurance policy, and any other related charges. The devil is in the details. It pays to be an educated consumer.
Also, make sure you assess the financial ratings of the company before buying your life insurance policy so you can be confident they will still be in business and able to pay when it is time to collect.
The Easiest Way to Get a Quote
If you don't have the time or desire to go through the work to find a reputable salesperson, there are several reputable websites where you can compare policies or even buy directly. It's free, both in terms of risk and cost, and it takes less than 3 minutes to get a quote.
There's no salesman hype, they shop from more than a dozen carriers across the entire industry, and your quote will include health class rating information so that it's accurate.
Here's a quick one-minute video tutorial that shows you the simple 4-step application process, so you know what to expect:
If you prefer reading, we also have a PDF outline, complete with screenshots, that walks you through the entire process. Click here to download the PDF outline and then click here to complete your application.
Term vs. Permanent
Term life insurance is the most straightforward and cheapest form of life insurance. Just like home and auto insurance, it is a type of insurance that pays off if you die within the specified term limit of the policy. This is important for protecting dependent children and spouses. If the term expires or the term is not renewable, your insurance coverage will expire without paying.
For those who want coverage until death to leave an estate benefit similar to an inheritance, then consider permanent life insurance. The advantage of permanent life insurance is it pays you whenever you die – not just within a specified term limit. Below are two types of permanent life insurance:
- Universal – This policy is a combination of death benefits with savings components. The biggest portion of the premium will be accumulated as savings and may be paid as cash at some future point.
- Whole – You will be covered during your entire life, and it pays out whenever you die. Thus, premiums are more expensive then term.
Life Insurance Shopping Tips:
- Consider term life insurance, as it is usually cheaper than permanent life insurance.
- Reduce the terms. The longer the term, the more expensive the policy.
- For couples, take a joint life policy. This is more expensive than a single policy, but it will also give you greater coverage.
- Buy when you are young. The older you get, the higher your premium.
- Live a healthy lifestyle. Insurers will calculate your premium by assessing your lifestyle, weight, age and other factors.
- Do the math and compare insurance quotes. Be a smart shopper.
- Disclose all your current medical conditions. Not disclosing any illnesses could invalidate the policy, potentially causing refusal of your payout when it is time for your beneficiaries to collect.
Lastly, before you go shopping for life insurance, learn the basic insurance terms (see below) and know what questions to ask your insurance agent. Don’t rush into buying life insurance.
Here are some questions to consider:
- How did you determine how much life insurance I need?
- What’s guaranteed in the policy?
- What returns can I expect?
- What happens if my health condition changes?
- What is my coverage in case of disability?
- What happens if I fail to pay my premium?
Life insurance is very important for people with dependents.
It's easy to buy, and it can make a huge difference in the event that you prematurely pass away.
It will be hard enough on your family to lose you, but the subsequent financial hardship left in your absence can change the future for your spouse and children if you aren't properly prepared.
Life insurance is the right thing to do for your family and will help you leave a legacy of financial responsibility and caring.
The Easiest Way To Compare & Buy Life Insurance
Compare insurance quotes from over a dozen insurance carriers in less than 3 minutes to find your best option – low price guarantee.
Apply and buy through Policygenius and let their licensed advisors handle the rest. Free of hassle, free of charge, and it takes less than 3 minutes.Get Free Quote
Life Insurance Calculator: Terms & Definitions
- Life Insurance – Insurance that pays out a sum of money either on the death of the insured person or after a set period.
- Whole Life Insurance – Life insurance that pays a benefit on the death of the insured and also accumulates a cash value.
- Universal Life Insurance – Life insurance where the excess of premium payments above the current cost of insurance is credited to the cash value of the policy.
- Term Life Insurance – Life insurance that pays a benefit in the event of the death of the insured during a specified term only.
- Insured – The person whom the insurance policy covers.
- Death Benefit – The face amount that will be paid to the beneficiary of the insured.
- Beneficiary – The person appointed by the insured to receive the proceeds after the death of the insured.
- Premium – The amount paid by the insured on a monthly, quarterly or annual basis.
- Term – Refers to the period of time coverage is effective.
Other Personal Finance Calculators:
- Net Worth Calculator: What is my financial net worth?
- Budget Calculator: How much of my income should go to each expense category?
- Expense Calculator: How much of my income is going to each expense category?
- Convert Irregular Payments To Monthly Budget: How much should I budget each month for all my quarterly, annual, and irregular payments?
- Compound Interest Calculator: How will my savings compound and grow over time?
- Cash Flow Calculator: How do I project all my irregular income and uneven expenses into a reliable cash flow projection?
- Present Value Calculator: What is the value today of a lump sum payment in the future?
- Latte Factor Calculator: Do periodic, unnecessary expenses really matter?
- Wage Calculator – Convert Salary To Hourly Pay: What does my salary equal in hourly pay – both real and nominal?