How much life insurance do I need?

Key takeaways

• Getting life insurance when you are young and healthy allows you to buy more coverage at an affordable price.
• When calculating income replacement for a life insurance policy, you want to cover at least 5-10 years of your income.
• Workplace policies often offer limited coverage (typically one or two times your annual salary), which may not be enough to cover long-term expenses, such as mortgage payments, education costs, or ongoing living expenses.

Life insurance is designed to help your loved ones stay financially secure if you were to pass away unexpectedly. Figuring out how much coverage you need, however can feel overwhelming. The good news? With a few simple calculations, you can determine a coverage amount that brings true peace of mind.

6 steps to calculate how much life insurance you need

Step #1: Add up your financial obligations.

The first step in calculating your life insurance needs is to total your expenses and debts, such as your mortgage or rent, future education costs, daily living expenses for your dependents, and any outstanding financial commitments. Next, you will want to think about how many years your loved ones will need financial support should you unexpectedly pass away.

Mortgage balance: $____________

Car loans: $____________

Credit cards/personal loans: $____________

Future education costs: $____________

Subtotal: $____________

Step #2: Estimate your income replacement.

When you're deceased, your paychecks stops, but your family's financial needs don't. Life insurance provides ongoing support for your loved ones after you die. A simple way to estimate how much coverage you need is to multiply your annual income by the number of years your family would rely on it.

Your annual income: $____________

Number of years to replace income: x ____________

Subtotal: $____________

Step #3: Factor in your end-of-life expenses.

According to the National Funeral Directors Association, the averagre cost of a basic funeral with burial in the U.S. is about $8,300. If you choose cremation with a viewing and service, the cost averages around $6,280. Including these end-of-life expenses in your life insurance planning helps ensure your loved ones aren't left with unexpected bills during an already difficult time.

Funeral and final medical costs: $____________

Subtotal: $____________

Step #4: Consider your family's unique needs.

Take into account any special circumstances that may affect your loved ones after you're gone. For instance, do you rely on a stay-at-home parent to care for young children or family members with special needs? Are you supporting aging parents financially? This step is about more than just numbers—it's about preserving the lifestyle and support system your family depends on so they're truly cared for in your absence.

Support for aging parents, special needs dependents, etc.: $____________

Subtotal: $____________

Step #5: Subtract your existing assets.

This step is essential to avoid overestimating how much life insurance you need. By factoring in your existing assets (such as savings, retirement accounts, current life insurance policies, and other accessible financial resources), you can reduce the amount of coverage required. Since premiums are based on the coverage you purchase, overlooking these assets could result in buying more life insurance than necessary and paying higher premiums.

Savings and investments: $____________

Retirement accounts: $____________

Existing life insurance: $____________

Total Assets: $____________

Step #6: Estimated life insurance coverage needs.

Now that you've outlined your financial obligations and considered your family's unique circumstances, it's time to bring it all together.

Start by totaling the needs identified in Steps 1 through 4. Then subtract the value of your existing assets from Step 5. The result is your estimated life insurance coverage amount—the figure that helps ensure your loved ones are protected without overpaying for unnecessary coverage.

Total needs (steps 1-4): $____________

Minus total assets (step 5): $____________

Final coverage estimate: $____________

Expert Tip: Life insurance isn't meant to set and forget.

It's important to keep in mind that as your life changes, so should your life insurance coverage. For this reason, it's vital to regularly review and adjust your coverage needs, especially after major milestones, such as a new marriage, having children, buying a new home, or changing jobs.

What is the DIME method of calculating my life insurance needs?

Similar to the six steps above, another simple way of figuring out just how much life insurance you might need is to use the DIME method. The DIME method makes it easy to calculate your life insurance needs by breaking things down into four simple categories—debt, income, mortgage, and education.

D - Debt. Add up any outstanding debts that you have. You'll want to include things like credit cards, car loans, or personal loans, etc.

I - Income. Then, multiply your annual income by the number of years your family would you're your support after you are gone.

M - Mortgage. Next, determine the remaining balance on your mortgage so your family can afford to stay in their home.

E - Education. Lastly, estimate any future educational costs for your children, such as college tuition costs.

6 tips for getting the right amount of life insurance

1. When calculating income replacement, you want to cover at least 5-10 years of your income.
2. Make sure that educational costs, daily living expenses, etc., account for inflation.
3. Try to calculate funeral and final medical expenses on the higher end of what they may actually cost so your loved ones aren't left paying out-of-pocket.
4. Always consider the long-term needs of your family so that you purchase the right amount of coverage for the future.
5. Don't wait! The younger and healthier you are the more coverage you can buy at a lower premium.
6. Don't rely solely on the life insurance offered through your job. Workplace life insurance policies often aren't portable (coverage will typically end if you leave or are terminated) and may not offer enough coverage.

Get life insurance in 1 simple step

Get a quote for life insurance online at Liberty Mutual or call for a life insurance quote, so our representatives can walk you through the process: 800-295-2723