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How Much Life Insurance Do I Need?

Christopher James


How much life insurance is enough? Most financial planners and life insurance agents will tell you that a 40-year-old male nonsmoker should carry at least $250,000 worth of coverage. That sounds like a big number – and it is – but it covers only about seven years of income replacement. In this article will explore options relating to how much life insurance you may potentially need.

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Shopping for Life Insurance

Generally, the goal of purchasing a life insurance policy is to ensure that, in the event of the insured passing, anyone who is financially dependent on the insured’s income will be safely provided for. Usually, this means a spouse, children, and other immediate family members.

When trying to determine the amount of life insurance that’s right for you, be sure to consider the following. 

  • Income that needs to be replaced over a certain number of years.
  • Your current debts (mortgage, car payments).
  • Overall Monthly expenses.
  • Potential future expenses.
  • Cost of benefits like Health Insurance.
  • The total amount of current cash assets.

Once you’ve estimated the amount of each of these items, you will then be ready to calculate your life insurance needs. This can be done in several different ways:

Life Insurance Calculator

A “How much coverage do you need” A life insurance calculator is a fast and reliable way to determine the amount of coverage needed.  Remember as life changes, life insurance needs can change, you can always buy more life insurance or reduce the amount of coverage.

Financial Obligations

One of the most straightforward ways to calculate the amount of life insurance you should purchase is to simply add up all your financial obligations and then subtract all liquid assets.

Your financial obligations might include the number of years of income you are hoping to replace, your remaining mortgage balance, personal debts (including student debt), funeral costs, college expenses, and other financial adjustments. Liquid assets might include any savings, easily sellable investments (such as stocks and bonds), already established college funds, and more.

Example: Suppose you are making $80,000 per year, have an estimated 20 working years left, and have $300,000 of personal debt, including the outstanding balance on your mortgage. This would mean your current total financial obligations amount to $1.9 million dollars. If you also have $200,000 in liquid assets, then an appropriate life insurance policy size is approximately $1.7 million.

DIME Formula

There are also several, widely used “rules of thumb” that make estimating your life insurance even easier. For example, some people might simply multiply their income by 10 and add $100,000 for every additional dependent.

Others might consider using the “DIME Formula” to calculate the amount of life insurance they’ll need to purchase. DIME stands for debt, income, mortgage, and education. To calculate an appropriate life insurance policy, they will simply add the value of all personal debt, the amount of income they hope to provide, the remaining balance on their mortgage, and an estimate for future education expenses.

Even though many of these formulas will produce a figure that is over a million dollars, life insurance is more affordable than many people initially assume. Regardless, taking the time to think about your life insurance needs can help you purchase an appropriate policy and know your family will be provided for if the unexpected happens.


There is no one-size-fits-all answer to the question of how much life insurance you need, but there are some general rules of thumb that can help you figure out what level of coverage makes sense for your family and finances.