How Much Life Insurance Do You Need?

Corey —  October 14, 2009

       If you’ve determined that you need life insurance, your next step is to figure out how much coverage you should buy. You don’t need a complicated calculator to figure this out. You only need to know how much income you’ll need to replace if you die and how many years until you’ll retire.

Replacement Income

       Life insurance’s primary function is income replacement in case you die prematurely. How much income you replace will be up to you. You can choose to replace your entire income. Or you could assume you personally spend about 20% of your income and just replace 80% of your income. Finally, you could choose just to cover essential expenses for your survivors (like shelter, food, clothing, utilities, etc.).

       If you have children, you’ll most likely want to plan on replacing your entire income. If you don’t have children, you’ll need to decide what purpose you want your life insurance to serve. Is it to fully replace the income you would have earned or just to cover the essentials? Once you’ve figured out how much income you want to replace, you just need to determine how much insurance coverage you’ll need.

How Much Life Insurance?

       Now you need to figure out how many years you’ll need to replace your income. Generally, you’ll use the number of years until you retire. (But you should adapt the calculation to your situation if necessary.) Then use this chart to find out what factor you should multiply your replacement income by:

Life Insurance Factors

       So if you need to replace an income of $40,000/year and you have 40 years until retirement, you’ll multiply $40,000 by 25 to get $1,000,000 of insurance coverage needed.

       Next, subtract any savings you have that could be used instead of insurance. (Don’t count retirement savings because your spouse will need that for retirement.) That will leave you with the total amount of insurance coverage you need to buy. If you’re married, just repeat this process for your spouse.

That’s It!

       That’s all you need to do to figure out how much life insurance you need. Just make sure you’re very careful about deciding how much income you’ll need to replace as that’s the biggest factor in this calculation.



Corey is currently pursuing a Master of Arts degree in religion. While he enjoys learning and writing about Christianity, another one of his new passions is writing about personal finances in order to help others make wise decisions with their money.

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