How Much Life Insurance Do You Really Need?

Not sure how much life insurance is enough? This quick guide breaks it down step-by-step, so you can confidently protect your family without guessing or overpaying.

Okay, if you read my blog post detailing the differences between Whole Life and Term Insurance, you know the types of policies.

If you haven't read the post, I encourage you to check that post as it gives helpful information in an easy to understand format.

Now on to the important question of how much coverage should you get?

A policy is very personal, and the right amount of coverage depends on your family’s needs. There’s no one-size-fits-all dollar amount, but here are some practical ways to figure out what your family might need:

Income Replacement Rule of Thumb:

One simple method is to take your annual income and multiply it by 7 (or even 10) . This rule-of-thumb says if you earn $50,000 a year, you might start with $350,000 in life insurance coverage (7x your income) as a baseline.

The idea is that the payout could help replace about 7+ years of your income for your family. Some experts now suggest 15x or more, especially for younger folks with many working years ahead.

While this is a quick and easy calculation, it doesn’t consider specifics — but it ensures your loved ones have a financial cushion for years.

The DIME Method:

This is a more detailed approach that considers your Debt, Income, Mortgage, and Education expenses.

Here’s how it breaks down:

D = Debt:

Add up all your personal debts (credit cards, car loans, etc. not including your mortgage for this step).

If you have $20,000 in student loans and $5,000 in car loan, that’s $25,000.

I = Income:

Decide how many years of income you’d want to provide for your family. Maybe you figure your youngest child will be independent in 18 years, or you want to cover income until your spouse retires in 20 years. Multiply your annual income by that number of years. Check out my other blog

For example, $50,000/year for 20 years = $1,000,000. This is to ensure your family can pay living expenses with your income gone.

M = Mortgage:

Note the balance of your mortgage. Let’s say you still owe $200,000 on the house. If you want the house paid off for your family, include that.

E = Education:

Estimate future education costs for your kids. If you have two young children and want to set aside, say, $20,000 each for college, that’s $40,000.

In Kentucky, the average annual tuition for in-state public colleges is around $11,610 for four-year public colleges, while out-of-state tuition averaged $30,780.

Now, add D + I + M + E.

Using our example numbers, that would be $25k + $1,000k + $200k + $40k = $266,000.

This gives you an estimate of the coverage you may require. It includes settling all debts, providing income for 20 years, paying off the mortgage, and covering college expenses.

In the unfortunate event of the unexpected, which we hope never occurs, your family would be safeguarded. Without it, consider the real challenges they might face if you didn't have insurance. With just one straightforward payment, you can leave a legacy!

Your situation will vary – you might not have a mortgage, or you might have more kids, etc. But DIME helps ensure you don’t forget a category. It’s a more personalized estimate than the simple multiple of income.

If you're considering a term insurance policy, be sure to visit my other blog titled "Choosing the Right Term Length," where I provide additional guidance on some best practices.

Subtracting Assets (Adjust for what you have):

One more step – consider what resources your family already has.

Do you have savings, investments, or existing life insurance through work? You can subtract those from the total need.

For instance, if you calculated $266k need via DIME, but you have $200k in savings and investments, and maybe $100k of life insurance through your employer, you might not need the full $266k in a new policy. Subtracting existing assets and insurance could lower the needed coverage.

The goal is to cover the gap between what your family would need and what they’d have in the unfortunate event of your death.

Everyone’s number will be different. A young couple with a new baby, a mortgage, and little savings will need more coverage than a couple with older kids and substantial savings.

If you need an easy tool to determine your requirements, click this link from Mutual of Omaha. They provide a handy tool you can utilize.

Should you have any questions during the process, keep in mind that I am here to help! I'm not just a call center representative; I'm your neighbor. I will guide you and help answer any questions you might have.

Just reach out by clicking this link to set up a time to connect!

Factor in Additional things like:

How much of the family income you provide, how many years until your kids are independent, any big expenses you want to fund (college, a wedding, etc.), and any special circumstances (like caring for an aging parent or a child with special needs).

Additionally, take into account final expenses—funerals can exceed $10,000 in Kentucky, and life insurance can help cover these costs, relieving your loved ones of that financial burden.

To get an accurate estimate customized for you, click this link to use another great tool from Mutual of Omaha. If you're uncertain about what final expense means, visit my other blog by clicking here.

If you lack life insurance, Final Expense can be a highly effective and affordable option to cover the final costs your loved ones will face.

The key takeaway: make sure you have enough so your family could maintain their lifestyle and achieve future goals even if your income was no longer in the picture. It’s better to err on a bit more coverage than too little, as long as the premiums fit your budget.

Ready to Protect Your Family? Let’s Talk!

If you’ve made it this far, you’re serious about doing what’s best for your family’s future – and I applaud you for that! Life insurance is a loving decision, and it doesn’t have to be scary or complicated.

Let me help you take the next step.

Email me at j.moon@fortifiedplans.com or click the link to get in touch.

We can start with a friendly chat, no pressure, no obligation.

Ask me anything – even if you just want to sanity-check how much coverage you need, or you’re curious what a policy might cost.

I’m here to help you understand and to make this process as easy as possible.

Life is full of uncertainties, but with the right life insurance in place, you can enjoy today knowing your family is protected for tomorrow.

So let’s find the right term, whole, or policy for your Kentucky family, and secure that peace of mind.

DISCLOSURE:

This article is intended solely for educational and informational purposes. It is not connected with or endorsed by the U.S. government, the Centers for Medicare & Medicaid Services (CMS), or any federal Medicare or Medicaid program. Insurance product availability, benefits, and rates may vary by state, carrier, and individual circumstances. For personalized advice tailored to your specific situation and compliance with Kentucky insurance guidelines, please contact a licensed insurance agent directly. Joshua Moon is a licensed life and health insurance agent in Kentucky.