The rule of thumb is ten times your income. It is not wrong, but it ignores the mortgage, the kids' ages, and the savings you already have. The method below takes ten minutes and gives a number you can defend.
Step one: what has to be paid off
- Mortgage balance, if you want it cleared.
- Car loans, credit cards, personal loans, medical debt.
- Final expenses. A funeral with burial commonly runs $8,000 to $15,000 all in.
Step two: what income has to be replaced
Take your annual take-home pay and multiply by the number of years your family would need it. Until the youngest child is out of school is a common answer. Until a spouse's retirement is another. Ten to twenty years is typical.
Step three: what you want to fund
- College or trade school for each child.
- A cushion for a surviving spouse to retrain or take time off.
Step four: subtract what already exists
- Existing life insurance, including group coverage through work (remember it usually ends when the job does).
- Savings and investments you would want used for this purpose.
- Social Security survivor benefits, if children are under 18.
The result
Steps one through three added together, minus step four. For a 40-year-old with a $300,000 mortgage, $60,000 of take-home pay, two young children, and $50,000 of group coverage, the number usually lands between $800,000 and $1,200,000. That sounds like a lot until you see the premium: for a healthy non-smoker, a 20-year term at that size is often under $60 a month.
If the premium is too high
- Shorten the term to the years that matter most.
- Split it: a larger term policy for the mortgage years and a smaller permanent policy for final expenses.
- Cover the biggest gap first. Some coverage in force beats a perfect plan that never gets bought.
This guide is general information, not advice about a specific policy. Benefits, enrollment rules, and costs vary by state, carrier, and year. Confirm details for your situation with a licensed agent.
