Estimating How Much Life Insurance You Need

You know life insurance is a must for financial stability, but what is a good rule of thumb for how much to purchase?

Follow this guide to accurately estimate the right amount of coverage for yourself.

Everyone’s life circumstances are different, and so it follows that each individual’s life insurance needs will be unique.

Purchasing life insurance is a smart financial move, no matter what you situation is!

But there are so many different types of policies and levels of coverage, how can you decide how much life insurance is right for you?

To help you understand how much life insurance coverage you need, let’s first take some time real quick to break down life insurance coverage and how it works.

What is Life Insurance and What Does it Cover?

how much life insurance do you needLife insurance is a contract between you and an insurer. The insurance company promises to pay out a death benefit to your loved ones when you die, and you keep your end of the bargain by making monthly payments on the policy.

The purpose of life insurance is to protect your dependents and other family who rely on you, from being financially burdened after you pass.

The insurer will provide for your family (beneficiaries) with a predetermined amount of money if you die. The money can be used for:

  • Supplementing for lost income
  • Paying for medical bills not covered by health insurance
  • Funding a dependent’s college education
  • Paying off a mortgage
  • Paying for a funeral

Big things like mortgage, medical debt, college, the number of kids you have and how many years until they’ll be independent, are all factors that you should consider when deciding how much life insurance to purchase. Life insurance policies can range from a minimum of $10,000 to upwards of $1 million.

First, Figure Out Which Type of Life Insurance Policy is Right for You

What are the different types of life insurance?

Most insurance policies fall under two main umbrellas:

Term life insurance and whole life insurance.

What is the difference between term and whole life insurance?

The key differences in the two types of life insurance are the period of coverage, the payout, and protection provided.

Different types of life insurance are designed to suit the needs of different individuals at their unique stages of life.

Which kind of insurance fits your needs?

Is your main goal is to protect your family against the risk of loss of your income?

Then term insurance is the right option.

If you want to protect your family against the financial burdens of your business or estate taxes in the event of your death, whole life insurance could be the right choice.

Term life insurance is a popular choice for young families who want to protect dependents from loss of income because you can purchase a large amount of coverage for an affordable rate.

However, coverage expires at the end of the term and if you survive then no death benefit is paid out. On the other hand, whole life coverage never expires. It builds cash value over time and has living benefits. The downside is that is more expensive than term life insurance.

How Much Does Life Insurance Cost?

Age, gender, health, and lifestyle choices such as smoking will all play a factor in determining premium rates for term life insurance.

Here are sample rates for a variety of whole life policies:

Whole Life Insurance Quotes

The quotes below are for males and females who are average height and weight for their age, and who are in the preferred risk class, meaning they are very healthy and have no family background of medical conditions, or past serious medical conditions.

AgeMale $100,000 Female $100,000 Male $500,000 Female $500,000 
25$72/mo.$64/mo.$152/mo.$128/mo.
30$72/mo.$64/mo.$160/mo.$136/mo.
35$72/mo.$64/mo.$176/mo.$152/mo.
40$88/mo.$80/mo.$248/mo.$216/mo.
45$136/mo.$112/mo.$416/mo.$328/mo.
50$209/mo.$165/mo.$682/mo.$484/mo.

As you can see, whole life insurance rates increase dramatically as you get older.  This is why it is recommended that you secure rates at an early age.

Whole Life Insurance Quotes for Smokers

Smokers regularly experience 2 to 5 times higher life insurance rates than non-smokers.  Because of this, it is essential to find good rates for smokers more than for others.

AgeMale $100,000 Female $100,000 Male $500,000 Female $500,000 
25$152/mo.$120/mo.$528/mo.$432/mo.
30$160/mo.$136/mo.$576/mo.$464/mo.
35$208/mo.$176/mo.$704/mo.$584/mo.
40$296/mo.$264/mo.$1,064/mo.$840/mo.
45$424/mo.$352/mo.$1,672/mo.$1,304/mo.
50$660/mo.$550/mo.$2,783/mo.$2,156/mo.

Whole Life Insurance Quotes for Diabetics

Diabetics who actively manage their diabetes and maintain an otherwise healthy lifestyle can experience affordable life insurance coverage. Those whose condition is worse can expect higher rates.

AgeMale $100,000 Female $100,000 Male $500,000 Female $500,000 
25$200/mo.$176/mo.$544/mo.$472/mo.
30$216/mo.$200/mo.$632/mo.$544/mo.
35$232/mo.$200/mo.$856/mo.$664/mo.
40$272/mo.$232/mo.$840/mo.$648/mo.
45$392/mo.$304/mo.$1,386/mo.$1,012/mo.
50$550/mo.$418/mo.$2,189/mo.$1,507/mo.

Term Life Insurance Quotes

The following rates in the tables below are for 30 year term life insurance policies for people in the preferred health class.

AgeMale $100,000 Female $100,000 Male $500,000 Female $500,000 
25$42/mo.$34/mo.$111/mo.$96/mo.
30$39/mo.$31/mo.$124/mo.$104/mo.
35$42/mo.$34/mo.$135/mo.$110/mo.
40$49/mo.$40/mo.$187/mo.$140/mo.
45$71/mo.$55/mo.$188/mo.$133/mo.
50$94/mo.$75/mo.$289/mo.$209/mo.

Term Life Insurance Quotes for Seniors 

Term life insurance is less popular with seniors because it rates are based on good health, requiring a health exam, and many term life insurance companies will not issue policies past the age of 75.

However, a 10-year term is an option many some seniors pursue. Often times for seniors who need coverage in low amounts, we recommend simplified or guaranteed issue policies, which offer lower amounts of whole life coverage in exchange for lower rates.

Below are some term life insurance rates for seniors for 10 Year Term policies.

AgeMale $100,000 Female $100,000 Male $500,000 Female $500,000 
55$62/mo.$47/mo.$148/mo.$105/mo.
60$65/mo.$49/mo.$231/mo.$150/mo.
65$103/mo.$81/mo.$399/mo.$247/mo.
70$171/mo.$130/mo.$710/mo.$430/mo.
75$293/mo.$237/mo.$1,195/mo.$841/mo.
80$606/mo.$451/mo.$2,507/mo.$1,756/mo.

Term Life Insurance Quotes for Smokers

The rates below are 30 Year Term life insurance rates for smokers in otherwise good health.

AgeMale $100,000 Female $100,000 Male $500,000 Female $500,000 
25$26/mo.$19/mo.$97/mo.$67/mo.
30$29/mo.$22/mo.$115/mo.$85/mo.
35$35/mo.$28/mo.$145/mo.$104/mo.
40$52/mo.$41/mo.$216/mo.$156/mo.
45$84/mo.$62/mo.$347/mo.$249/mo.
50$116/mo.$94/mo.$530/mo.$398/mo.

Term Life Insurance Quotes for Diabetics

The rates below are 30 Year Term life insurance rates for diabetics in otherwise good health.

AgeMale $100,000 Female $100,000 Male $500,000 Female $500,000 
25$39/mo.$31/mo.$111/mo.$96/mo.
30$42/mo.$31/mo.$124/mo.$104/mo.
35$42/mo.$34/mo.$135/mo.$110/mo.
40$49/mo.$40/mo.$187/mo.$140/mo.
45$71/mo.$55/mo.$188/mo.$133/mo.
50$94/mo.$75/mo.$289/mo.$209/mo.

How Much Life Insurance You Need By Age Group

Before we dive more in-depth into the factors to consider when estimating your life insurance coverage needs, let’s take a second to look at the various stages of life, and the life insurance needs associated with each stage of life.

Age RangeFactors to Consider
18 to 25
  • Minimum coverage needed to pay for existing debts
  • Dangerous lifestyles and occupations
  • Lowest need for life insurance
25 to 35
  • New families (marriage or children)
  • Mortgage payments
  • Career development
  • High need for life insurance
35 to 45
  • Family getting older
  • Saving for children
  • Looking toward retirement planning
  • Highest need for life insurance
45 to 55
  • College funding for children is needed
  • Mortgage payments still needed
  • High need for life insurance
55 to 65
  • Retirement savings
  • Finalizing retirement planning
  • Mortgage being paid off
  • Medium need for life insurance
65+
  • Typically term insurance need to cover small debts
  • Burial insurance planning for afterlife expenses
  • Mortgage paid off
  • Kids no longer dependent
  • Low need for life insurance

Factors to Take Into Consideration When Determining How Much Coverage You Need

Despite the various types of life insurance policies available, the number of providers, and the types of factors that affect life insurance rates, all people looking for life insurance coverage should consider these factors.

It is a well-known fact that 70% of people with life insurance overestimate their coverage needs.  Considering these factors before purchasing life insurance can help you save thousands of dollars over the life of a policy.

1. How Many Financial Dependents You Have

Plan to bump up your life insurance purchase by several hundred thousand dollars if you have a spouse, kids or other dependent family members who rely on you for care.

The age of your dependents will affect how much long-term care you need to plan for in your coverage. The income replacement required decreases as your dependents get closer to adulthood.

What type of necessities do you provide for your family? Things such as groceries and health insurance. When adding up how much life insurance you need to get, make a comprehensive list of all the things you do financially for your family, including monthly bills and consistent expenses.

You need to plan correctly and purchase enough insurance coverage to leave a sizable death benefit that takes care of all your responsibilities.

2. How much money you spend on an annual or monthly basis

Do you keep a monthly budget and track your spending each month? If there are holes in your budget or it lacks details, the most accurate way to determine your monthly needs is to use a personal budget app. It takes a little longer to go through, but you can also use your bank statements to estimate your spending.

Initially, you might think a $500,000 policy should be more than adequate coverage. It’s half a million dollars, after all! But you can’t accurately estimate your needs if you skip steps. You can’t protect your family if you don’t know how much you need every month, so don’t just guess. You might be surprised to find out you need more than $500,000.

Generally, experts recommend that for people with families and a mortgage, to get a life insurance policy that protects for 10 to 20 times your annual salary.

3. If you plan on sending children to college

Consider adding the cost of college education into your formula for life insurance coverage.

Education can provide upward mobility and a comfortable life for your children, but at ten of thousands of dollars a year, your kids’ tuition (as well as room and board, textbooks and all the other costs of college) is often one of the biggest expenses of your adult life.

It’s important to plan for what college will cost years from now – likely much more than it does when you buy your policy.

4. All of your outstanding debts

How much debt do you have other than your mortgage? If you have any other debt, you are spending more than you earn. Do you add to your debt each month? Do you pay it down each month? If you have debt, you have to buy more life insurance to pay it off.

5. The cost of funeral and burial

Funeral expenses are rising faster than any other consumer market. Typically purchased by seniors, final expense insurance is a type of coverage that plans for the high cost associated with a funeral, headstone, burial, flowers, and memorial service.

A final expense life insurance policy can help protect the surviving family from bearing that burden. One benefit of this type of policy is insurers are often willing to cover older individuals, even past 85. Also, the premium cost is relatively low and the requirements are not stringent.

Even if you are financially stable and independent, you should still consider the expenses that come with covering a funeral- upwards of $10,000. Taking out a basic life insurance policy will save your family members from the burden of that cost.

What’s Are Some Good Rules of Thumb for Calculating Life Insurance Coverage Needs?

Nailing down an exact dollar amount it tricky, but here a three popular ways that you can calculate coverage.

When you want a quick and easy way to jump start ball parking your life insurance needs, try a general rule of thumb. Here are the pros and cons of these three methods:

1. Multiply your income by 10

This simple calculation is pretty old school. The pro of the rule is that it’s easy to use, but many financial advisers caution that with the current economy and interest rate trends, it could be an outdated method.

The “10 times income” rule isn’t a bad one, but it fails to be specific. Based solely on your income, it doesn’t take into account your savings or the unique needs of your family. A big flaw is that it doesn’t provide a coverage amount for stay-at-home parents. And nowadays, it is critical that both parents are insured. If you are a single individual, then this rule of thumb could work for you.

2. Add $100,000 to this number

Similar to rule number one, this rule of thumb focuses on education expenses. College education tuition expenses are a key part of your life insurance formula if you have kids.

This method is more detailed than the first, but it still doesn’t take a deep look at all of your needs and assets. If you want to keep things simple and lean towards having more than enough, this could be a good rule of thumb to follow.

3. The DIME formula

This rule of thumb dives deeper into your personal finances than the other two. DIME is an acronym for: debt, income, mortgage, and education. These are the four main areas play a major role in determining how much life insurance you really need.

  • Debt and final expenses: Add up your debts, other than your mortgage, plus an estimate of your funeral expenses.
  • Income: How many years will your dependents need support? Possibly the number of years before your youngest child graduates from high school. Multiply your annual income by that number.
  • Mortgage: Calculate the amount you need to pay off your mortgage.
  • Education: Estimate the cost of sending your kids to college.

The DIME method takes a more complete approach to estimate your life insurance needs. The only con is that it doesn’t account for your savings or stay-at-home parents. If you want the most comprehensive snapshot of your life insurance needs without getting too technical, this is a good rule of thumb to use.

Plan your future with confidence and protect your family with the right amount of life insurance coverage. With all the details spelled out, you are ready to make an informed decision on how life insurance you need to purchase.

The Best Way to Calculate How Much Life Insurance You Need

While all of these methods are good ways to estimate the amount of life insurance coverage you need, the best way to figure out how much coverage you need is to work with a professional.

Our independent life insurance agents work with dozens of the best life insurance companies, and can help you find rates for a multitude of policy options to compare and help you understand your options.

They can also help you plan out your needs as life continues to evolve.

Give us a call today, or start comparing life insurance quotes online using our instant quoting tool.

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About Jeff Root

is the owner of rootfin.com. He's an independent life insurance agent who has helped 1,000's of consumers purchase life insurance online and over the phone.

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