How Much Life Insurance Do You Need?

How Much Life Insurance

Figuring out how much life insurance you need to buy is hard, but you can make an estimate based on a few things.  Before you rush off to get life insurance, however, you must first determine whether you need one, and what type of insurance you require. 

Buying life insurance is not necessary for everyone.  In general, if you are the primary provider of the family, have dependents or a business you wish to protect, or have a significant debt that exceeds your assets, then you definitely need insurance before you die.  Otherwise, it would not really make sense for you to buy one.

There are different types of life insurance, each with a specific purpose, benefits, as well as drawbacks.  Here are some of the specific types of life insurances:

  • Permanent life insurance
  • Term life insurance
  • Universal life insurance
  • Whole life insurance
  • Variable life insurance
  • Variable universal insurance
  • Final expense life insurance
  • Guaranteed issue insurance
  • Simplified issue insurance
  • Group life insurance


Buying a term life insurance is necessary if you wish to secure your dependents against the loss of your income, especially if you are their primary provider.  Universal life insurance or whole life insurance can be helpful if you wish to secure your dependents against estate taxes or the termination of your business.  What you and your dependents need can help you determine the type of life insurance you will need to buy.

Broadly speaking, you can determine the ideal amount of life insurance policy for your dependents through computing your long-term financial obligations and then subtracting your assets.  The result will be the amount of money that your life insurance will need to satisfy.  The problem with this is that it can be difficult to determine what cover in your computation.  Now to help you determine how much life insurance you need, here are the rules of thumb to guide you for the scope you should consider.

The Rule of Thumb

  1. 10 Times The Amount Of Your Salary. 

    This rule is very self-explanatory and easy.  The only thing you need to do is multiply your income by 10.  Most times, people choose to multiply them from 5 to 10, depending on what you prefer, but 10 would be the safest considering the high price of commodities today. For instance, let’s say you make $50,000 a year.  If you prefer to have a coverage that is 10 times your income, then you would have an insurance policy amount of $500,000.  Now, this may already seem like a huge amount of money, more than what you currently have in your retirement account, but keep in mind that this rule doesn’t take into consideration the needs of your family, your savings, as well as your existing insurance policies.  This won’t really replace your full income for the remainder of your dependents’ day, but it will allow them some time to mourn without any financial stress.

  2. 10 Times The Amount Of Your Salary Plus $100,000 Per Child. 

    The future of your child or children’s education is one of the important things in life that needs to be included in the coverage of your insurance.  Multiplying your salary by 10 and adding $100,000 for each child you have can help you estimate how much insurance you need, but again this doesn’t really cover the needs and assets of your family.

  3. The DIME Formula. 

    With rule number 3, you will get a more detailed overview of your family’s financial needs as compared to the two previous rules.  This formula considers your debt, income, mortgage, as well as education. 

  • Debt:

    This needs to include all your debts as well as your family’s final expenses including an estimated amount of your funeral expenses.

  • Income:

    Try to decide the amount of yours that your dependents would require support. This could take until your youngest child reaches the age of 18 or until your child finishes high school.  Multiply the number of years to the amount of your annual salary.

  • Mortgage:

    Compute for the total amount of money that you need to pay off for your mortgage. This is important so your family wouldn’t need to worry about a place they can stay after you have died.

  • Education:

    Compute for the estimated amount of cost it would take for your child or children to go to college. As a parent, it is important that you ensure your kids can go to college.  Dependency on this for the children to handle in today’s world is just to much.


After you have the amount for your debt, income, mortgage, and education, just add them all up and you will get the estimated amount of your insurance coverage.  The problem with DIME Formula, however, is that it doesn’t include your existing savings as well as the life insurance coverage that you have.  This can be a disadvantage for those who wish to know a realistic total insurance coverage cost.




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