The most common mistake people make is picking a number out of thin air. Some grab a round figure that sounds big enough. Others buy whatever a coworker has, or whatever came with the job. But your family's needs are not your coworker's, and a number that feels right is rarely one you have actually checked.
If you are the main earner, this guide is mostly for you. Life insurance pays your family a set amount of money if you die. The goal is simple: make sure the people who depend on you can keep their footing. Here is an easy way to work out how much that takes.
Start with the income your family would lose
Your paycheck does a lot of quiet work. It covers groceries, the car, the power bill and the day-to-day costs of running a home. If it stopped, your family would need money to fill that gap.
Ask yourself two things: how much income would they need to replace, and for how many years? A family with young children may need support for a long stretch. A family with grown kids and a paid-off home may need less time.
Your spouse's income, if there is one, counts too. The question is how much of the gap their paycheck could cover on its own.
Add up debts and future costs
Next, think about what your family owes and what is coming down the road. Life insurance can help clear the bills so your family is not stuck making payments on one income.
- Mortgage or rent. Paying off the home, or covering several years of payments, gives your family a steady place to live.
- Other debts. Car loans, credit cards and student loans can still need paying after you are gone.
- College and big goals. If you hope to help your kids with school, count that cost now.
- Childcare and extra help. A surviving parent may need to pay for care or reduce work hours.
A licensed agent compares policies from top-rated companies for you.
Get my free quoteDon't forget final expenses
A funeral and the bills that come with it can add up quickly, and they often land on the family within days. Your family may also face medical bills, legal fees and the cost of settling your affairs.
Setting aside money for these costs keeps your loved ones from having to dip into savings or borrow at a hard time.
Subtract what you already have
Now put it together. Add the income your family would need, your debts, your future costs and your final expenses. Then subtract what is already in place.
That might include savings, investments, money in a retirement account and any coverage you already carry, such as a policy through work. What is left is a sensible starting point for how much life insurance to look at.
Be careful with work coverage. It is often modest, and it usually ends if you change jobs or leave the company, so it may not be something your family can count on for the long haul.
Revisit it when life changes, with help from LFG
Your right amount is not fixed. It moves as your life does. A marriage, a new baby, a new home or a bigger mortgage can all raise what your family would need. Paying off debts, kids growing up or a spouse earning more can lower it.
A good habit is to review your coverage after any big life event. You do not need to do it every month, but you should not set it and forget it either.
If you would like help working through the numbers, LFG is an independent insurance agency here in Saint Petersburg that compares options from several insurance companies. One of our licensed agents can walk through your situation with you, answer your questions and help you find a fit for your family and budget.
Common questions
Is there a simple rule of thumb for how much life insurance to buy?
You will hear quick rules, like a multiple of your yearly income. They can be a rough starting point, but they ignore your debts, your kids' ages and what you have saved. Working through your own income, debts, future costs and savings gives you a much better picture.
Should I buy life insurance if only one person in the family earns money?
Often yes, and the earner is usually the one who needs it most, since the family depends on that income. A spouse who stays home also does work that would cost real money to replace, so many families look at coverage for both adults.
What if my needs change after I buy a policy?
That is normal. After a marriage, a baby, a new home or a big change in income, it is worth taking another look. An agent can help you see whether your current coverage still fits or whether it makes sense to change it.
This guide is general information, not legal advice or a promise of coverage. What's covered depends on your policy's terms and the insurance company's approval.