How Much Life Insurance Do You Need?

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how much life insruance do you need?
I have a love-hate relationship with life insurance. On the one hand, I love it. It helped me get through college and have a life. It also helps me sleep at night knowing that my family would be taken care should something terrible happen to me (God forbid). I also hate it because many agents…

I have a love-hate relationship with life insurance.

On the one hand, I love it. It helped me get through college and have a life. It also helps me sleep at night knowing that my family would be taken care should something terrible happen to me (God forbid).

I also hate it because many agents misrepresent it. They sell you the wrong kind of insurance and the wrong amounts. Their primary objective is often to maximize their financial security, rather than yours.

Don’t let their character flaws influence your decisions about this important topic.

Do You Need Life Insurance? (Seriously)

Life insurance has only one purpose: to complete your financial responsibilities if you die.

That’s it.

If you have no dependents or anyone else that relies on your income, you don’t currently need life insurance. Don’t fall for a common trap: life insurance is not an investment.

If you do have dependents, you should buy term rather than whole life, in almost every case. I’m going to assume you are familiar with the differences between term and whole life insurance already. It is a good idea to familiarize yourself with your options, if you’re not.

Why Do YOU Need Coverage?

how much life insruance do you need?

It’s easy to complain about life insurance premiums. After all, we have to pay them each month but rarely see the benefits. This reluctance to make a monthly premium payment for something you won’t see the benefit might be one reason that you’re underinsured.

Before you figure out how much life insurance you need, stop, and think about the reason you are getting life insurance. This can help remove the sting of paying the premiums.

The point of life insurance isn’t to provide you with money for retirement or any other purpose (although some cash value policies offer those promises). It’s supposed to be a way for you to help your family.

According to a survey from John Hancock, many people see it as a way to cover final expenses. Twenty-five percent of Baby Boomers and 16 percent of Gen Xers see it as one way that the family can cover funeral costs and other costs, reducing the financial burden on loved ones.

When Do You Need Life Insurance?

Life insurance is there to replace your income if you die, so if you have anyone relying on your income, then you need life insurance. If any of the following situations apply to you, then you probably need life insurance:

  • You have dependents (children, spouse, partner, parents living with you, etc.)
  • Someone relies upon your income or the value you provide
  • You have a mortgage or other large debts
  • You have a large or complicated estate
  • You own a business or have a partner in a business

Life insurance can be used as a tool for estate planning and can be useful for avoiding probate or taxes in certain situations. If you have a large or complicated estate, then you should meet with a lawyer or estate planner to help you determine the best course of action.

When You May NOT Need Life Insurance

You may not need life insurance if:

  • You have no financial dependents and probably will not in the foreseeable future
  • You are retired and living off investments or other income sources, and your spouse or other dependents will have enough income from those sources if you pass before him/her
  • Children rarely need life insurance. The only time it makes sense to get life insurance on a child is if they are earning income and that income needs to be replaced if they die.

Note about children’s life insurance: Some life insurance companies will offer a rider on an adult’s policy that gives your child a few thousand dollars coverage, and depending on the company, may guarantee the child coverage after they turn age 18, regardless of their health.

The life insurance company I use offered $20,000 coverage for my daughter for an additional $2 per month on my life insurance policy, and the guarantee she would be eligible for coverage after age 18, regardless of health. Use your judgment on this type of plan.

How Much Life Insurance Should You Buy?

Remember, life insurance is meant to make up for your lost income. We need to figure out how long your dependents will depend on your income, or in the case of a stay at home spouse, the value you provide in taking care of children or running the household.

Another option to think about is mortgage life insurance if you feel it would be beneficial to your family, though term life these days may be a better value.

So, what’s a realistic amount to get?

One rule of thumb is to multiply your income by 17 and buy that amount of insurance. If you bring home $48,000 a year you need $816,000 in term insurance. This is a rough estimate but let’s see if the rule of thumb works.

Without getting bogged down in lots of detail, let’s make some assumptions:

  1. You and your spouse are 45 years old.
  2. You each bring home $4000 a month for a total of $8000.
  3. You have one child, age 7.
  4. You will retire in 20 years.
  5. The $8000 in monthly income allows you to save for your child’s education and your retirement.
  6. If one of you dies, your expenses will increase by $1000 monthly to pay for extra childcare for five years.
  7. Inflation will be 3% over the next 20 years.
  8. Investment return will be 5% over the next 20 years.
  9. You already have $150,000 in savings.

In this example, you need to replace $5000 in monthly income for the next five years and then $4000 for the next 15 years.

Tell you what, we’re just going to replace $5000 for the next 20 years and give the surviving spouse a little bonus for putting up with you as long as they did.

How Much Term Life Insurance Do You Need?

Using a calculator and inputting your desired income ($60,000), the number of years (20) and rate of return (2%), let’s see what we come up with.

  1. We used $60,000 because it represents $5000 in monthly income for 12 months.
  2. We also used 2% for the rate of return, which is 5% return less 3% inflation.

Mathematically, this isn’t 100% the way to do it, but it is close enough for what we need.

Input those numbers, and your result is $981,085. Now, subtract the $150,000 you already have, and you need to buy $831,085 in term insurance.

How long do you need it for? 20 years of course.

By then, according to your plan, you’ll have enough to retire on.

In this particular example, the result is pretty close to the rule of thumb calculation. You should buy $850,000 in term life insurance.

If we want to complicate this issue, we’ll notice the amount needed decreases each year. This exercise calculates the amount you need right now.

You could easily re-run this exercise each year to see if you still need the same amounts, or if you can call and reduce your coverage with the insurance company.

Just remember two things:

  1. Only buy inexpensive term life insurance for income replacement and family protection.
  2. Think of life insurance in terms of income replacement. How much income will you need and for how long?

Once you determine this, it’s easy to figure out how much you need to buy.

Get a Free Term Life Insurance Quote

Once you have a general idea of how much life insurance you need, you should take the time to shop around for life insurance quotes. In general, you want to stick with well-known companies who are in great financial shape.

There are three ways to save time when shopping for life insurance quotes: the first is to visit a life insurance agent. Many agents are great and will help you analyze your needs and help you compare quotes.

Unfortunately, some life insurance agents give the rest a bad name and will try hard to sell you an expensive whole life insurance policy they position as an “investment.”

The next method is to contact insurance providers on your own directly. This is time consuming and requires you to make dozens of phone calls or visit dozens of websites.

My preferred method to shop for a life insurance policy is to use an online tool which will help me compare several options at once, without having to deal with any sales pitches.

No dependents, no life insurance?

Here is a common situation: You are young and single, or you are a newly married couple where both spouses work (dual income, no kids). Do you need life insurance?

There are two sides to this argument – some say, yes, buy life insurance regardless of whether or not anyone is financially dependent upon your income, and others who will say not to bother. As with everything, there are different ways to look at this.

If you are young, you can usually buy a term life insurance policy cheaper now than you can a few years down the road.

The benefit of this is you can lock in lower life insurance rates, and you will already have coverage in place if something were to happen that would leave you uninsurable. (See why term life insurance is almost always better than whole life insurance).

In this case, you can buy a 30-year term life policy while you are young, healthy, and lock in less expensive premiums than if you were to buy a policy several years from now. As your needs change, you can reevaluate your life insurance needs and buy another policy if needed.

You will need to run the scenarios again to determine how much you need and for how long. This method can help you lock in lower life insurance rates now, and buy more life insurance as needed.

Remember, you can always more than one life insurance policy (check with your life insurance provider, as some companies may limit you to one policy).

What About Buying Life Insurance Through Work?

Many companies offer an automatic life insurance policy on all employees or offer employees inexpensive group life insurance. For example, my previous employer provided life insurance as part of our benefits, with a policy payout of 2x annual salary (we could purchase more at our expense).

These policies are fine as supplemental life insurance, but it may not be wise for them to be your only life insurance policy because jobs are rarely permanent. If you leave your job or are laid off, you may lose your life insurance at a time when it may not be easy or affordable to buy a new life insurance policy.

Here is an example of using your employer’s life insurance as a supplemental life insurance policy and not your only policy:

When I was in my early twenties I had a $50,000 policy through the military (SGLI), which was enough to pay for any incidental burial costs my family might have faced (I was in the USAF at the time, so I would have had a free military burial; the $50k policy was “just in case” and only cost $2.50 per month).

I didn’t see the need in getting a larger policy because I was single and had no dependents.

Get a Free Life Insurance Quote from Haven Life:

Click on the banner to the right to visit Haven Life for a free life insurance quote. Haven Life helps you compare life insurance quotes from multiple life insurance providers.

In short, they do the heavy lifting for you and help you get the life insurance policy you need without having to deal with heavy sales pitches. Haven Life will save you both time and money.

The form will provide you with a general idea of how much you might pay depending on your general health, location, and the amount of coverage you need. The quote is free, and there is no obligation.


Don’t wait to provide your family with the protection they’ll rely on in the event of your death; get instant life insurance quotes today. Your family will thank you for it!

You can compare life insurance policies from multiple insurance companies by visiting the Haven Life website.

Peace of Mind

While you’re alive, it’s still possible to feel good about life insurance. According to the survey, 88 percent of respondents think that they feel more confident about the family’s future when life insurance is involved.

If you worry about what could happen to your family if you’re gone, life insurance can provide peace of mind (which in turn helps reduce stress and anxiety and can be beneficial to your health). Sixty-five percent specifically pointed out that overall stress levels could be reduced with the purchase of life insurance.

We know that stress is related to several physical and mental ailments, so being able to reduce that stress can improve your quality of life and encourage better relationships with your loved ones.

This article is by Neal Frankle. Neal found himself in a financially fragile situation at the age of 17. Both his parents passed away while he was still in high school, leaving behind a small insurance settlement.

Neal sought out a financial advisor to help him invest his nest egg so that it would help put him through college. Instead, the advisor charted a self-serving course and was on the verge of burning through the money when Neal realized what was happened and fired him just in time to avoid losing everything.

The experience had a deep impact on Neal and formed in him a lifelong desire to help people learn to make smart financial decisions. Today, with more than twenty-five years of experience in the financial services industry, Neal is an author and avid blogger.


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About Neal Frankle

Neal Frankle is a Certified Financial Planner in Los Angeles, author, and blogger with over twenty-five years of experience in the financial services industry. His financial blog covers tips on how to make smart financial decisions. He is also the chief editor of, and

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  1. John Hunter says

    Few people seem to realize as you age often you need less insurance. As you mention your “obligations” decrease. You also should have other assets saved up for your retirement that can be used for other purposes (paying off mortgage, children’s education…) if you are no longer around.

    • Ryan says

      Curious Cat: That makes sense. I haven’t done much research into life insurance, so this guest post was a good primer for me. With our first child on the way I know I need to bump up my coverage (I only have a small policy through work). I’m sure I will need to periodically reevaluate my situation, but that should be done with all aspects of personal finance.

  2. Miranda says

    Thanks for this great post. We have life insurance in an amount that will pay off our debts (mortgage, student loans) and provide some income replacement. Since we are living on my income right now, and I work from home, I’m not worried too much about my husband. So right now we have higher coverage on me, in order to help my husband while he finishes school — just in case. We probably should up our coverage, but between our savings and the coverage we do have, we feel pretty secure. We will increase my husband’s coverage when he finishes and gets a job.

    • Ryan says

      Miranda: My wife and I have a small amount of life insurance right now as well, which is fine because we are both professionals and can handle our personal bills without any worries (all we have is a mortgage).

      But we have a little one on the way and my wife will drop out of the workforce. I will need to buy both of us more life insurance in the even something happens to one of us. The plan will be to cover enough of our income that the surviving spouse wouldn’t have to work (or only work part time), that way they can take care of the child without incurring too much financial difficulty.

  3. DDFD at DivorcedDadFrugalDad says

    The rule of thumb for purchasing life insurance is take your youngest child’s age and subtract from 21– then multiply the result by your income– that’ how much you need.

  4. Neal Frankle says

    DDFD – Never heard that one before…..thanks. That’s very good.

    CAT -You nailed it. That’s why you need to replace your income INCLUDING savings.

    Miranda – That’s a very smart approach. I assume you are both young so waiting a few years shouldn’t add to the premium very much.

    Ryan -I salute you looking into this. Term is really cheap. I think you’ll be surprised how inexpensive it is considering the sleep-at-night benefit.

    • Ryan says

      Neal: Thank you for the excellent article. My wife and I plan on discussing our needs and hope to purchase a better life insurance plan before our first child arrives in July. I currently have a small policy through work, but it certainly wouldn’t be enough. Thank you for the tips on how to determine how much insurance we will need. It will definitely help me sleep better at night. 🙂

  5. My Journey says

    Disclaimer: I work for a Wealth Managment/Estate Planning Firm that does sell insurance, however, that is not where I make my money.

    Like most personal finance subjects this is NOT black and white, yet bloggers and talking heads try to make it so.

    First of all, who the heck really buys terms and invests the rest? I mean come on, if that were the case we wouldn’t be nation of debtors LOL!

    Second – I know it is not the norm, but most of my clients have an estate tax problem – it is a complicated situation I attempt to make easy, but suffice it to say lets say they don’t have the liquidity to the estate tax….we sometimes fix that problem with permanent insurance. This problem usually does not go away post 65.

    Third – In your example – if husband dies at age 66, leaving a spouse, how long will that money last if she need long term care?

    With all that being said, I currently have term insurance because I have outstanding debt to take care of…but I just wanted to show the unfavorable point of view that is often ignored.

  6. Neal Frankle says

    Thanks for your comments My Journey. Here is my reply:
    a. I am also a financial adviser and sell insurance.
    b. Many of clients buy term and invest the rest. We set up systematic investment plans.
    c. You work with clients who do need to look at whole life. That’s why I wrote “buy term for income replacement”. I didn’t say to buy it for estate planning needs. Whole life does have a place in the estate plan – but IMO that’s the only place.
    d. Long term care is a very important issue and I’m glad you brought it up. I think a fair response to using whole life for long term care (please never ever do it) would require an article.
    e. Thanks for your honesty about your term coverage. Also, thanks for your civility. Often, when people take issue, they do so in a rather aggressive manner and I really appreciate your approach. I don’t think that all insurance sales people are rotten – if you read my story, you’ll know why. I do however think that the product is often sold to the wrong people. If a client has $100/month and needs $1,000,000 in coverage, the whole life won’t solve the problem while the term may. I just don’t appreciate it when some agents sell the whole life in order to maximize their own financial well-being. I’m not saying you do this, but it does go on.

  7. My Journey says

    I hate when people are not civil on blogs…it ends up being a pissing contest with no real winner since so many of us are anonymous (in this case just me!) For purposes of “readability” I’ll respond according to your points.

    B – I am impressed you are able to create that situation. That being said, I have to ask do you “invest the rest” in loaded mutual funds, or no-load bond funds? I do not judge either way, I only ask because I am curious how you make a living if you sell no-load mutual funds and term. Are you purely fee based?

    C – You make a very valid point, and a lot of people do use life insurance as solely an income replacement vehicle. That being said, who is to say that income need doesn’t extend beyond age 65. This is my main problem with Term (vs. Whole Life or UL) – you don’t know whats going to happen in the future and the other options allow for a flexibility that is impossible with term.

    D – I am not suggesting we use a Whole Life Product as a replacement for LTCi, rather I am asking why we only need that bucket of cash (or income replacement) until age 65 only. I am only using 65 because of your example, do you sell 30 year term to a 30 year old? What about if you see a 40 year old what do you do then? sell 20 and ignore that 5 year period? Again, I guess my point goes to the inflexibility of Term.

    E – I always appreciate a good discussion!

    If a client has $100/month and needs $1,000,000 in coverage, the whole life won’t solve the problem while the term may. I just don’t appreciate it when some agents sell the whole life in order to maximize their own financial well-being. I’m not saying you do this, but it does go on.

    3 Points here:
    (1) 1000% Correct as to the $100 bucks a month for $1mil in coverage. Which is why I have 250K term for 20 bucks a month.
    (2) I get the anger with so-called financial planners who are nothing more than pushing product. I understand it and feel the exact same way.
    (3) As to not saying I do this – I am actually a director here, hired for my knowledge with estate taxes (law degree). Despite having all my licenses I have yet to sell a product.

    Ironic Story: After I commented a Planner came in my office and we were talking about funding a special needs trust with Life Insurance (I will write a post on this tonight, and if CashMoney allows me to, I will put the link up at another time). Despite it being a child, there is no point at which Income won’t be necessary to provide this child with special needs cash to purchase those items which medicaid wont’ cover. This little story provides two points:
    a) A less than informed planner wouldn’t have put this money into a SNT thereby SCREWING this Family.
    b) Term isn’t the end all be all, and people should at least hear out someone talking about another product.

  8. Wealth Pilgrim says

    My intent with Wealth Pilgrim is NOT to solicit clients so I’m not going to talk about how I work with clients – with your permission.

    INCOME REPLACEMENT – I agree with you. My thinking is that people should have a plan whereby they could stop working by 65 but if not, they would need the coverage longer.

    LTC – I feel that LTC coverage is stand alone. I think that TERM is actually very flexible.

    Again, I respect your well made points and very much appreciate your civil delivery. I also really dislike the negative energy.

  9. Michael @ The Life Insurance Insider says

    I’ll second My Journey that there are legitimate other reasons to purchase life insurance other than income replacement and that other types of life insurance products that are better suited to match some of those reasons than term life insurance. Business succession planning, estate planning, and final expense planning are all legitimate reasons to purchase life insurance.

    Your article makes some great points and people need to be careful of agents and financial planners making decisions that better suit their financial plan than that of their clients. I would hate for someone to get the impression that a financial planner or insurance agent recommending life insurance for something other than income replacement or recommending something other than term life insurance was automatically incompetent or trying to rip them off.

  10. Dan says

    I disagree with the notion that life insurnace is cheap per the recommendations of this article. To buy a 20-year policy at 17 x’s my current income – ouch. That’s a fairly significant additional monthly expense.

  11. Dan says

    I see no mention of personal health – that plays a huge role in the premium you’ll get. If you smoke, you’re shooting yourself in the foot as you’ll be paying much more for the same policy. If you’re on any kind of prescription drug they can possibly knock you down a status level for that as well.

  12. My Journey says


    While this may not be appropriate but I think of term insurance as the bottom of a pyramid. Do you really need to be dropping in 500 a month into a Roth IRA (not saying you do – just making a point) if your family can’t survive past your demise?

    Not sure if you do…but stop smoking! With the increase in the federal tax on smoking going from 39 cents to over a buck, now is as good as ever.

  13. Wealth Pilgrim says

    Michael, I agree. That’s why I said that term is THE solution (IMO) for family protection and income replacement. There are uses for whole life but they are limited.

    Dan, I understand your point. It’s not cheap. But consider how expensive it would be for your family if you weren’t bringing home the money every month. Unfortunately, I lived through that. You don’t want to even consider that as an option…..

  14. My Journey says


    WOAH 2 packs a day? Considering we are talking about stuff over the comment section I can’t tell if you are being sarcastic or not. But if you are serious you can’t possibly be bitching about the cost of life insurance.

    Considering I like Ryan and his readers lol I decided to run a quote for you:
    Lets say you are 45 and pay 300 a month for 30 Year Term – note that 300 is LESS than the amount of 2 packs a day ($5/pack X 30 – in NY a pack is over $7). This amount will buy you OVER $320,000 GUARANTEED.

    I work for a AAA Rated (one of the few left) company that has been around about 150 or so years lol. Which means you CAN even get cheaper term somewhere else.

  15. My Journey says

    Again, I should repeat, I am not attempting to sell life insurance over the internet – To date, I have never sold a single policy (that may change eventually).

  16. Dough Roller says

    Great article. It hit home for me because like the author, life insurance helped me get through college, too.

  17. Bret says

    I recently started an internship with a mutual company and am on the (never ending I assume) path to learn everything about each concept (whole vs. term) and each product so I can best serve my clients and have a lucrative career that allows me to sleep at night. I’ve read that the average person will make additions to their original commitment 5-7 times over their lifetime. From a purely financial standpoint, I would much rather see the first year commissions from all 5-7 purchases, even if it’s term, by best serving my clients needs and situations then to push a whole life policy in order to get more cash. And that’s purely a financial move, not to mention ethical. Every negative thing I’ve read about products, rates of return, and sales tactics make me feel more and more secure about my position with this company and the standards which they teach and promote. Granted, not every agent will follow those and act in the best interest of the client, but that’s really more of a comment on greed and human nature then that of companies or insurance products. If you’re thinking about making a wise decision with your finances (insurance, investments, whatever) then you should also be willing to put time and effort into researching and getting the facts before hand. Not to say that deception is excusable by any means, but I think the responsibility lies in the clients hands, in being knowledgeable and seeking council prior to any major financial decision, just as much as the agent or company. Simply put, term is good for what it does and whole is good for what it does. It’s just a matter of if “what it does” is what you need. My company may be paying 6.5% for a return which isn’t the 10% that people compare it to (btw they never mention what in the world is yielding 10%), but the principle is guaranteed to not go down and the policy and cash value will do (for the most part) what the ledger states in the beginning. We’re all grown ups, do your research and ask a lot of questions to people who are reputable and don’t stand to make a profit off of you.

  18. Dez says

    Humm, I take you IF I don’t have dependents but I have a sizeable estate, I don’t need insurance to pay taxes for the beneficary? IF I’m poor I don’t need insurance to pay for a funeral? If over 65 and I am married, my kids are grown, my spouse wouldn’t need to replace the lost income from my soical security nor would my spouse need to live after I’m gone?

    I’ve never seen such a crazy statement.

  19. Miss J says

    Hey there. Insurance shopping. We have one child, 3 months old. Anyways…Are life insurance benefits taxed? Becasue my before tax and after tax incomes are VERY different and that makes quite a difference in how I calculate the “rule of thumb”.

    Our son needs 21 years of “income replacement”. I make $78,000 a year (pre-tax) so I would need $1,638,000 in life insurance!? That seems like an awful lot… If I calculate it post tax then it’s still about 1.2 million which still seems like a lot…but maybe I’m just being naive about the whole situation…

    Also, providing that if I were to die, my husband could take a lump sum of cash and pay off our 30 year mortgage we would save an INCREDIBLE amount on interest…so doesn’t that reduce the amount of life insurance we need? For instance our $235,000 mortgage comes out to about $1,600 a month of which a whopping $1,100 goes to interest right now. I know that as time goes on less and less of our payment will go towards interest…but still this mortgage interest factor must affect the calculation some how?

    Currently I have 600K worth of coverage. 100K through work and a 500K whole life policy (don’t get me started on that…I feel really ripped off by the financial planner who sold it to me…but I digress). I feel like I need a little more coverage but not DOUBLE…what do you think?

  20. My Journey says

    Miss J,

    Lot to digest but I feel you deserve some insight:

    1) Life insurance is income tax free. As opposed to what most finaicial planners tell you – it is 90% of the time included in your estate for estate tax purposes (there are advanced ways to get it out of your estate). So, if you had assets totalling $500,000 and you had a $1,000,000 policy. You would pay 0 in federal estate tax (because you can leave up to $3.5 Mil to a non-spousal US bene) but you might hit a State Estate Tax if you live in one of 18 states which are decoupled.

    2) Second your end number is $1.67mil or something doesn’t into account future growth of that money. If you are trying to get how much you need that way (e.g. Income Replacement) you need to do the present value of that number given a specific growth rate (I would use something really low because the kid is going to have to be conservtive so like a 2.5% NET to 3.5% NET).

    3) In terms of the mortgage you should build an excel spread sheet seeing how much that takes off your husband’s need.

    4) As you can tell from the above comments and my guest post on this blog – I like whole life insurance because you know why – 99% of us (including myself) do not buy term and invest difference! How much cash do you have built up in the WL? If it was int he last 2 or 3 years the number is 0, but if its 10 years deep you’ll be suprised how much cash is there, you can then do a lump sum 1 time pay off of UL or diff type of term.


  21. teacher mom says

    I am trying to figure out how much life insurance to take out on my husband. He is an executive chef with no benefits. I am teacher with great benefits that will help my husband if something was to happen to me, me on the other hand…We are both 30, excellent health, two kids (3 and 4) what is a good plan?

    • Ryan says

      Teacher mom, It is very difficult to answer your question because you don’t give enough information about your financial situation. The rule of thumb used in this article is 17 times the annual salary of the person in question, but that formula doesn’t always work for everyone or each situation.

      You need to consider how much money you would need if one of you were to pass away. Take a look at your current expenses, possible future expenses (funding college, insurance, moving, etc.), possible changes to life situation (remarrying, for example), and try to determine how much you would need above your current income to reach those future expenses. You might wish to consider how much it would take to pay off any debt you might have, including your mortgage, then go from there.

      In any calculation I would do, I would consider how much it would take to payoff the mortgage (or all debt), then add a buffer based on the assumption of how much I would need to maintain a decent lifestyle with my current income from working, with no house payment. There is no “exact’ formula because each situation is different, just guides that might make things a little easier. I hope these tips help.

  22. Dad S says

    I am looking at buying term insurance to replace income lost if something should happen to me (wife works but wish to leave her income out of the equation)…I make about 6K a month after tax but wondering how long of a term i should get…I have 15 years to retirement but have young kids, 2 and 5…since the youngest will still only be 17 when i retire, should i opt for the longer 20 year term or stick with the 15 year term to retirement? Also, as we have some assets built up, i am really only concerned about near term unexpected events and making sure the kids are comfortable through college…What advice can you offer?

    • Ryan says

      Dad S, Term insurance should be cheap enough that adding a few years to your policy is probably worth it. You never know what will arise between now and then and having that extra time on your policy will probably help you sleep better at night. With most term policies you can drop it if you no longer feel like you need it. But adding a few years to your policy later on means you will pay premiums at the new rate. (for example waiting five years to change your policy might be more expensive than getting a longer term now).

  23. Jenna says

    Thanks for posting this information. Currently I’m in the “don’t need life insurance” group, but it is a good thing to recognize what life events might be in my future to make me switch groups.

  24. ctreit says

    I am with you on most of these points especially on life insurance for kids. When I wrote a post about life insurance for kids in a previous blog I was running, I got a bunch of nasty comments. Like you, I argued that life insurance is supposed to replace income. That’s it. – I would like to add that you also want to take assets into account when you decide whether you need life insurance and how much coverage you need. If you have sufficient assets that allow your loved ones to survive even if they lose you income, you can skip life insurance entirely.

    • Ryan says

      very true on all points. I know a few people who have passed the point of needing life insurance. When you get up in years it almost becomes prohibitively expensive. I hope to have enough money to no longer need life insurance when my current 30 year policy runs out.

  25. pamela says

    As always I feel there are exceptions to rules. My parents did one of those kid things when I was in school. I took it over when I got older for one main reason. One My parents were in debt up to their eyeballs..if something happened to me and they had to pay for a funeral I didn’t want to have added to that debt!! They literally had NO savings so that $10,000 would have been used to pay for my funeral with a little left over. And I think that is a good thing.

  26. Leonard Robbins says

    Dad S, you may also want to consider “laddering” your policy(s). Remember that you can always purchase more than one policy from the same or different carriers as long as you inform each insurer of your plans. Also, when considering more than one policy, try to keep the amount at $250,000 or more since you will usually get a better rate than a lower amount.
    Whatever you decide, you’re doing the right thing by thinking about it, rather than just pulling a figure out of the blue!

  27. Ryan says

    Here is something I don’t understand. In the example given, it was assumed that each spouse brought home $4000, but it was also assumed that every dollar of this $8000 per month would be spent on food, mortgage, savings, or child expenses.

    But, this can’t be true. If I die, my family loses my $4000 a month. But they don’t need to replace my $4000 a month. See, I won’t need to eat, drive a car, or take a shower in the grave. So no food, car payments, nor water bills. And our retirement savings can be cut drastically as well. The NET income needs to be replaced, not every dollar that I bring home. Right?


  28. Frank says

    Whole life is a total crock of BS for most people. It’s prohibitively expensive for almost anyone, at least for any significant death benefit. If you need anywhere between 500K and 1Mil, which is quite standard for most people using the 10 to 20X income formula, then have fun with those monthly payments on whole life. I don’t know how many people have an extra 3, 4, or 5 hundred bucks per month laying around, but I sure don’t.

  29. Kirk Kinder says

    Very good article. I love how you look at the cash flow needs of the couple, not a generic rule of thumb. The rule of thumbs are so inadequate. A couple with lots of debt face a different situation than one that only has a mortgage. Also, people need to input their view of insurance. I tend to focus on cash flow needs that should be replaced due to a death. Others may want to also add extra insurance for retirement savings, college savings, etc. Insurance is a personal issue.

    I also agree that term is key. Permanent insurance is needed in some instances, but for the vast majority of people, it is a waste.

  30. John Butler says

    Great article Neal, glad you focused on life ins. as income replacement. I think a lot of people would not have as many questions concerning life ins. ( cash value vs. term) if they had a complete written financial gameplan. Setting up accts. for immediate, short, mid and long term needs is critical. Without it we don’t understand how much we really need to save to become financially independent. That is the goal for our family.

  31. Kyle says

    I have a question. My wife has two life policies and I have one. My wife has a million policy and a 500,000 policy. I have a 500,000 policy but my wife has had gets for over 30 years. I’m switching jobs in which the company buys us two more policies for free as part of the contract. Should we cash in one of our old ones since the company is paying for two more? It makes no sense to keep paying premiums when the company is doing it for us. We could also use the cash for new house and sons school. What do I do?

    • Ryan Guina says

      Kyle, I can’t give you an answer to your question, because there are toms of variables that haven’t been discussed. For example, your age, financial situation, health, ability to get a policy on your own after you leave your current job, and many other factors. These aren’t questions you should post in a public forum and are best addressed by a financial professional or an insurance agent. Many insurance companies will help you review your policies free of charge. I hope this helps!

  32. Lenny Robbins says

    Before giving you any specific advice, I would check with your new employer and find out what type of policies are “free”, who would own them and their face amounts. Next, before lapsing your current policy(s), I or another agent should know all the specifics such as cash available, death benefit, health rating, etc. before giving a firm opinion. Hope this helps!

  33. Dana says

    Hi…I am a 40 year old female making $95,000/year. My husband is 41 (making $35,000) and we have a 3 year old. We have approximately 10,000 in savings (not retirement). How much life insurance and how long a term should I purchase a term life policy for?

    • Ryan Guina says

      Dana, You will probably want to consider several factors, including your current expenses, your debts, how much it would take to settle everything out in the event one spouse passes away, future earning potential, and other factors. You would also likely want to have a larger policy for yourself (as the primary breadwinner) as opposed to your husband. Consider other factors such as child care, paying off the home, etc. At the minimum, I would look at something in the half-million range or higher for yourself (or possibly much higher if you have a lot of debt or your husband’s future earning potential isn’t very high).

      How long of a policy? That depends on when you believe you will be financially free, with your assets being able to cover you through retirement. If you plan on retiring at age 60, then a life insurance policy through age 60 would be a good place to start. But considering you have a small amount of savings, you may wish to take that a little further – maybe with a 25 or 30 year policy.

      At this point, I encourage you to meet with a financial planner to get started in a savings and investing program to help you prepare for your retirement years. Now is a great time to get started.

  34. Lenny Robbins says

    Hello Dana,
    Assuming no more children, I would purchase policies for both of you long enough to make sure you child has enough for her education. At a minimum, 10x each of your annual saleries would make sense. I would also choose a carrier with good conversion opportunities in the future. So, probablym 1 million on you and $350,000 on your husband. There may be addional information that could change this, but it’s a good start.

  35. Bret says

    Dana, to replace you’re income for life it would take 2mm, for your husband about a million (based on current 4% “safe withdrawal rates” and earning 7% per year on the proceeds to index for inflation). That probably sounds absurd. If you feel like your retirement is close enough to being on track and you won’t need that in retirement you can ladder term policies that will reduce coverage as your retirement approaches and your child is out of the house. Most life insurance sales people will say that your need will never go away and that you need a much larger amount and probably some permanent coverage and would like to see you paying so much premiums that the only thing you can truly afford to do is die (because you won’t have money for anything else). You would probably do well with something like a 10 year policy for a million on yourself and half that for your husband followed by a 20 year for 800k for you and 400k for him and then a 30 year for 200k for you and 100k for him. Try and had the longer policies with the option to convert to permanent down the road (should you be diagnosed with cancer two years before the policy expiring etc.). That is just an idea but you’re probably better off going to a Certified Financial Planner (CFP) and delve a little deeper into it. The reason behind the laddering is to try and provide sufficient protection while not overspending on insurance you don’t need. At your guys income level the last thing you need is permanent insurance and it is an absolute terrible way to build college savings, so stay away from it for your kid (for that reason alone, we have a permanent policy on our daughter but for other reasons and it’s commonly mis-sold as a 529 alternative). Don’t let people try and put fear into you over the crash that happened in 08-09 and try to get you to buy whole life, it’s just a sales tactic by many insurance agents who are not licensed to give investment advice to begin with. My experience is first a life insurance agent, then a financial advisor and now a bond fund manager. Good luck.

  36. Dana says

    Thanks for the responses Ryan and Lenny. After doing some quick research I was thinking of doing the following, what do you think:
    – 1.5 million dollar policy/20 year term for me
    – $500,000 policy/20 year term on my husband

    My main purpose in doing this would be to provide income replacement for my husband and child. Do you think I am over insuring my self with $1.5 million coverage on myself?

    Any and all feedback would be greatly appreciated!!!

    • Ryan Guina says

      Dana, based on the initial information you gave us, I don’t think you are over-insuring yourself at $1.5 million. My initial response was very conservative. A lot of it depends on your current and anticipated expenses, future earning potential for your husband if you pass away, future pensions, etc. Remember, it should be less expensive to get a larger policy today, than to decide you need a larger policy in 5 years.

  37. Dana says

    Bret…what do you think of going with a 20 year term policy at $1,000,000 and a $500,000 for a 30 year term. That way I can provide 1.5 million until I’m 60 and between 60-70 $500,000 would be available if needed?

  38. Lenny Robbins says

    No, I do not think you are over insuring. Especially with interest rates as low as they are. However, I would also make sure you both have a will and a trust set up as long as you are in the “financial planning mode”. You will want to speak with an attorney certified in your state that can help you with questions such as “What happens if…….”
    This whole procedure is not fun, but very necessary!!
    Good luck!

  39. Jody Allison says

    I disagree about the insurance for children, as I have witnessed the devastating effect that the loss of a child has on a family. Funds to take the time to grieve would have been very helpful, because while the pain of the loss never goes away, not having to return to work immediately can certainly reduce the related stress.

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