Life Insurance

How To Calculate Life Insurance Needs

By April 22, 2024 No Comments

Life insurance provides a major safety net for your family in the event of your untimely death, but how do you figure out how much you need to make sure they’re well-protected?

Determining how much life insurance you need can be complex as you’ll want to consider a number of factors including your income, expenses, debts, financial goals, and other obligations.  Don’t worry! We’re here to help.  On this page, we’ll walk you through the steps to calculate your life insurance needs effectively.

Step 1: Evaluate Your Financial Obligations

Immediate Expenses

Start by listing your immediate financial obligations that would need to be taken care of upon your death. This could include:

  • Funeral expenses
  • Medical bills
  • Outstanding credit card debt
  • Bank Loans

Ongoing Expenses

Next, identify recurring expenses that your family would need to cover. These may include:

  • Mortgage or rent for your family home
  • Utility Bills (electric, water, gas)
  • Groceries
  • Childcare or education tuition expenses

Step 2: Calculate Your Income Replacement Needs

Determine how much income your family would need to replace to maintain their current standard of living. A general rule of thumb is 7-10x income though that of course varies by individual needs.

Short-term debts/expenses may be best serviced with term life insurance (e.g. personal loans, car loans, or college tuition are likely only to be a factor for the next 10-15 years depending on age and lengths of loans) whereas long-term debts/expenses may be best service with longer term life insurance (e.g. 30-year term) or permanent life insurance (e.g. guaranteed universal life or whole life).  Creating a mix of benefits may be a great option for you as well (e.g. part 10-year and part 30-year, or part 20-year and lifetime coverage).


If your annual income is $100,000, you might consider a total coverage amount between $700,000 and $1,000,000 (this may be accomplished under a single policy or combination of policies depending on the timeframes your financial goals fall within).

Step 3: Account for Future Financial Goals

Consider any future goals that your family may have, such as:

  • Paying for college education if you have young kids or planning to have children
  • Buying a new home
  • Retirement savings

Factor these into your life insurance calculation to ensure your policy provides adequate coverage for these goals.

Step 4: Adjust for Existing Assets and Savings

Subtract any existing assets, savings, or investments that your family could use to cover expenses from your total life insurance needs.

Step 5: Consult with a Financial Advisor

Life insurance needs can vary greatly depending on individual circumstances, so it may be helpful for you to consult with a financial advisor to ensure you’re making the right choices for your situation.


By following these steps and seeking assistance when needed, you can determine an appropriate coverage amount that provides peace of mind for you and financial security for your loved ones.

Remember, life insurance is about planning for the future and not just covering immediate expenses.  It’s there to ensure your family’s financial well-being in your absence.  Review your needs regularly as circumstances change, and adjust your coverage accordingly to keep your policy aligned with your financial goals.

Contact Us

If you would like to speak with a live agent and get a free quote for coverage, call us today at 1-888-972-0024 or click here to send us an email.