How much life insurance do I need?

Most people underestimate how much life insurance they need. The standard ‘10x income’ rule is a starting point — your actual need depends on what your family would lose without your income.

The two methods

There are two common ways to calculate life insurance needs:

1. The income replacement method (10-15x annual income)

Buy a death benefit equal to 10-15 times your gross annual income. The reasoning: invested conservatively at 4-5%, that lump sum can generate your annual income indefinitely, preserving the principal for your spouse’s later years.

Quick and easy, but it misses anyone whose situation is more complex than “replace my paycheck.”

2. The needs-based method (DIME)

DIME = Debt, Income, Mortgage, Education. Add up:

• Debt: all debts except mortgage (credit cards, auto loans, student loans, personal loans)
• Income: years of income your family needs replaced. For young families, often until kids are grown plus a buffer
• Mortgage: remaining mortgage balance
• Education: projected college costs for each child

Then subtract:

• Existing savings, retirement accounts (that won’t be needed for retirement)
• Existing life insurance (employer-provided plus personal)

The remainder is your coverage need.

Worked example

35-year-old parent of two, earning $90K/year:

• Debt: $25K (credit cards + auto)
• Income: 15 years × $90K = $1.35M
• Mortgage: $320K remaining
• Education: 2 kids × $180K = $360K
• Subtotal: $2.055M

Subtract:

• Savings/retirement: $140K
• Employer term: $180K (1x salary, common)

Need: $1.735M ≈ $1.75M-$2M term policy

Term length: how long do you need it?

Common term lengths are 10, 15, 20, 25, and 30 years. The right answer depends on when your family stops needing the coverage:

• Until youngest child is independent: typically 20-25 years for parents of young children
• Until mortgage is paid off: typically 15-30 years
• Until retirement (when investments replace insurance): typically until 60-65

Pick the longest reasonable term. Premium increases with term length but locking in a long term while young and healthy is far cheaper than re-underwriting at 50.

When to revisit coverage

Life insurance needs change. Re-evaluate after:

• Marriage or divorce
• New child
• Home purchase / mortgage change
• Significant income change
• Significant savings/investment milestone
• Aging out of dependent care obligations

Common mistakes

• Relying only on employer life insurance. Employer coverage typically ends when you leave the job — and 1x salary is often inadequate.
• Insuring only the breadwinner. A stay-at-home parent provides labor (childcare, home management) worth $50K-$80K/year that would need to be replaced.
• Buying too little to keep premium low. Term is so cheap that going from $500K to $1M typically costs $10-15/month more. Buy what you actually need.
• Buying through one source without comparing. Independent brokers, direct-to-consumer (Haven Life, Ladder, Ethos), and full-service insurance agents all have access to different carrier pricing. Shop all three.