How Much Life Insurance Do You Need?

“How much life insurance do I need”?  That’s one of the more common questions I get during financial planning reviews, particularly from clients with younger children.  It’s a very important question.  The answer: it depends.


I usually start the response by asking this question: if you were to die tomorrow, who cares financially?  And the important word here is financially.  You can’t insure against the sadness or sense of loss that comes with a death.  Insurance exists to protect those you leave behind in a more tangible way.  Here are some things to ask yourself in determining how much is enough:


  1. If I die, do those I leave behind have a source of income that will allow them to at least survive?
  2. What lifestyle would they have? (or another way to ask it is will they have enough to keep the house and not drastically change the way they live?)
  3. Will they not only have enough to live on in the short term, but will they be able to retire, go to college, or whatever other goals you had?
  4. There will be a transition period at any rate, which might include higher child care expenses, relocation to be nearer family, etc.
  5. How much debt do you have and do you want it paid off if you die?


While there is no standard answer to the question of how much insurance you need, there are some basic “rules of thumb”.  For example, Dave Ramsey, the popular radio and television personality who talks about finances, debt reduction, etc., says that 10 to 12 times your income is the number to shoot for.  Here’s an article from Forbes that talks about some of the other general rules:

If you’re more detail oriented, this link to the blogsite Nerdwallet has a calculator that walks you through the numbers of your income, debt, etc. and help you come up with a number.

The final question is what type of insurance to buy.  I recommend term for the majority of coverage, but there are times when other types of insurance might make sense.  If you’re interested in having a conversation about it, feel free to shoot me an email and we’ll set something up: [email protected]