How Much Life Insurance Do You Need?: the facts

1. The amount of life insurance a family needs is what the payout has to do: replace an income for the years it is needed, clear the debts, cover the final expenses, and fund what was promised, less the coverage and savings already in place.
2. Replacing the income is the largest piece, and it is a present value: a fund that, invested, pays the income each year, rising with inflation, and is used up at the end of the years. More years or a lower return on the fund make it larger, fast.
3. Example: $100,000 a year for 20 years, rising 3% a year from a fund earning 5%, needs about $1,676,302. Add $250,000 of debt, $15,000 of final expenses, and $100,000 for education, subtract $300,000 of existing coverage and savings, and the new coverage needed is about $1,741,302.
4. The rule of thumb, 10 times income, gives $1,000,000 for the same family. It ignores the debts, the education, and the number of years, and it can land far from the need in either direction.
5. Social Security survivor benefits reduce the need and are not subtracted here. A surviving spouse caring for a young child, and the child, can receive monthly benefits until the child grows up; the survivor tools on this site cover survivors at retirement age.
6. The need is not fixed. It falls as the years shrink, the debts are paid, and savings grow, which is why coverage is reviewed every few years rather than bought once. Whether term or permanent insurance fits the number is a different question, and this tool does not answer it.

Educational only, not investment, tax, or legal advice. Results are hypothetical estimates that vary with each use and over time and are not guaranteed accurate or complete. Using this tool creates no client relationship with Considerate Capital, and the site that linked here is not affiliated with it. By using it you agree to the tool terms.