How Much Life Insurance Do I Need?

In Category: Life Insurance

How Much Life Insurance Do I Need? Image
  • Posted On: December 31, 2021
  • Article By: Vivian Blanco

Ensuring that you have the right financial resources in place, including life insurance, is essential if you have loved ones who depend on you and your income. Life insurance can pay off any debts, cover funeral expenses, and make managing day-to-day living expenses less burdensome for those you leave behind. A large part of choosing a life insurance policy is determining how much money your dependents will need. Selecting the face value—the amount that your policy pays if you die—depends on several factors. The amount of coverage you need may differ from what someone else requires. Let's look at some determining factors to help choose the proper coverage.

Obtaining life insurance is a personal and important decision. Please consult with one of our licensed agents to find the policy that best suits you.

Income Replacement

Arguably, one of the most important reasons for life insurance is to replace your income or salary. This recommendation is a general rule-of-thumb that financial experts often recommend and includes a policy anywhere from 10 to 15 times your annual salary, adding a bit more on top of that for inflation. So, assuming you make $50,000 per year, a policy with a face value of $500,000 up to $750,000 may be what you need. 8% is the recommended number to add for inflation so, if you're comfortable with ten years of your income, at $50,000 per year, that would be $500,000 earnings replacement plus $40,000 for inflation. 

Another approach is determining how many years are left until your retirement and multiplying that by your earnings. So, if you are 30 and plan to retire at 65, multiply your earnings by 35 years.

All of this advice is sound, but there are other factors at play when it comes to the final face value of the policy. So keep on reading to find out how much else you may need.

Outstanding Debt

The proceeds of a policy can be used to pay off any debts you may have. Therefore, you should add any debt you have to the policy's face value in addition to income replacement. Any debt should be factored in, including mortgages, student loans, credit cards, and auto loans. Another debt that you'll leave behind is funeral and burial expenses. You should also factor those expenses into the policy.


Factoring in education should also be a priority if you have children. It would be best to estimate the cost by factoring in tuition, fees, and room and board for college. In other words, any anticipated cost for sending your child, or children, to college. Current estimates are $100,000 to $150,000 per child.

The DIME Formula

What we've discussed in this article is known as the DIME formula. It's an acronym meaning Debt, Income, Mortgage, Education. Having these bases covered may be enough, but ultimately, it's the amount that you feel comfortable with leaving for your loved ones.

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