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Add up what your family would need if you died: debts to pay off, income to replace for a number of years, and future costs like education. Then subtract savings and any life insurance you already have. What’s left is a starting point for how much coverage to look at.
Step 1: List what would need paying
- Debts: your mortgage, car loans, lines of credit and credit cards.
- Income: how much of your yearly income your family would need, and for how many years.
- Future costs: things like childcare or education.
- Final costs: funeral and other end-of-life expenses.
Step 2: Take away what you already have
- Savings and investments your family could use.
- Life insurance you already have, including any through work. Check whether workplace coverage would continue if you changed jobs.
Step 3: Revisit it when life changes
What you need depends on your circumstances and stage of life. Big events, like buying a home or starting a family, are good times to check your coverage again.
What the death benefit is for
Life insurance pays a one-time death benefit. In most cases, the person who receives it doesn’t pay income tax on it. Your family can use it to replace your income, pay off debts or cover other costs.
An example
A parent has a $400,000 mortgage, wants to replace $50,000 a year of income for 10 years, and expects $40,000 in education costs. That adds up to $940,000. They have $60,000 in savings and $100,000 of coverage through work, so the starting point is $780,000. This is a simple illustration with round numbers. It is not advice for your situation, and a fuller review might add or remove items.
Put it into numbers
FAQs
Should I count coverage from work?
Yes, but check whether it would continue if you left your job, and how much it pays.
Do I need to count inflation?
Over many years, rising costs matter. The calculator can help you test different amounts.
Is there a simple rule of thumb?
Rules like “a multiple of your income” are quick, but they skip your debts and savings. Adding up your real numbers gives a better starting point.
Sources
General information only, not advice for your situation. Coverage depends on each policy's terms, conditions, limitations and exclusions.