How Much Life Insurance Do You Really Need?

Life insurance is one of the most important financial decisions you can make—but how much coverage do you really need? Too little, and your loved ones may struggle financially. Too much, and you may be paying for coverage you don’t actually need. Let’s break it down so you can feel confident in your decision.

The Simple Formula

A common rule of thumb is to aim for 10-15 times your annual income in life insurance coverage. But let’s get a little more specific with this straightforward calculation:

Life Insurance Need = (Annual Income x Years Needed) + Debts + Future Expenses – Existing Savings

Here’s what to include:

Annual Income x Years Needed: How long would your family need financial support if you were gone tomorrow? For many families, 10-15 years is a good starting point.

Debts: Include mortgages, car loans, credit card balances, and any other major debts that would become a burden for your family.

Future Expenses: Think about college tuition, weddings, or other big-ticket goals.

Existing Savings: Subtract any existing life insurance, savings, or investments that your family can rely on.

An Example

Let’s say you earn $60,000 a year and want your family to be covered for 10 years. That’s $600,000. Add in a $200,000 mortgage, $20,000 in other debts, and $100,000 for college expenses. That’s $920,000. Subtract $100,000 in savings, and you’d need $820,000 in life insurance coverage.

Adjust for Your Situation

No two families are the same. If you have young kids or a stay-at-home spouse, you might want to err on the higher side to account for childcare and lost household support. On the other hand, if your spouse earns a good income or your kids are financially independent, you might be able to scale back.

Next Steps

Ready to run the numbers? Call us today at 251-866-4102 to schedule a no-obligation review with one of our friendly agents.