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. Below is a simple calculator tool I created to help you figure out what you need.

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?

If you want a quick tool, reference the calculator I created below.

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). For example, 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 insurance experts I've encountered now recommend 15 times or more, particularly for younger individuals with children and 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 decent financial cushion from the cost of inflation over time.

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.

For example, $50,000/year for 20 years = $1,000,000.

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 per year for a 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 provides you with an estimate of the coverage you might consider.

Imagine your family receiving that check and the impact it could have on your family. It would clear all debts, offer income for 20 years, pay off the mortgage, and cover college expenses. That's the beauty of having protection and leaving a true legacy through a life insurance policy.

In the unfortunate event you weren't protected, or not having enough, consider the real financial and emotional burdens your family might face. That kind of devastion can really impact those that you love the most.

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.

Life Needs Analysis Tool:

If you need an easy tool to determine your requirements, feel free to play around with this tool.

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.

Consider 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.

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.

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.

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.