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How Much Life Insurance Is Enough?

By Chris Huntley on October 7, 2019

How can you determine the exact amount of life insurance you need?

You’ll want to ensure that you get sufficient coverage, without overpaying for coverage you don’t need.

Continue reading to find out how much life insurance you really need:

Table of Contents:

  • How Much Life Insurance Do I Need?
  • Why Do Most American Buy Life Insurance?
  • How to Calculate Your Life Insurance Needs

How Much Life Insurance Do I Need?

The proper amount of life insurance coverage will depend on your REASON for purchasing life insurance.

Here are a few guidelines:

  • Income Replacement (for the “bread winner”) – 10x your income
  • Non-working Spouse – half the coverage of the working spouse
  • Key-Person Insurance for Businesses – 1-3x annual revenue the key employee is responsible for
  • Buy-Sell Coverage for Business – 1 to 1.5x current value of the business
  • Final expenses – $10,000 to $50,000 for funeral, burial, and debts

Why Do Most Americans Buy Life Insurance?

Here are the top three reasons people buy life insurance:

  • To cover burial and final expenses
  • Help replace lost wages/income of wage earner
  • Transfer wealth or leave an inheritance

An increasing number of Americans are using life insurance as a supplementary retirement income vehicle.  In 2017, 52% of Americans said they would use their life insurance to supplement their retirement, compared to 38% in 2011.  (More on this below…)

Out of all the reasons to buy insurance above, the one we see most often is #1… people using life insurance to replace lost income in the event of death.

Life Insurance For Supplemental Retirement Income

You may be interested in life insurance NOT for its coverage, but to grow a cash value and future income stream.

If that’s the case, you’re less concerned about how much you need, and more concerned about the best whole life or universal life insurance policies for cash value growth and future income.

Life Insurance For Estate Planning

Now let’s say you have a large estate, and may need life insurance to pay for estate taxes or to provide liquidity to your heirs.

You’ll want to speak to an estate-planning attorney and CPA to calculate (and possibly mitigate) your tax liability upon death.

Calculating How Much Life Insurance You Need

Some additional considerations when determining how much life insurance you need are:

  1. Time Left until Retirement – Many peoples’ biggest asset is their ability to work and earn income. Since most breadwinners purchase life insurance to replace that lost income in an unexpected death, you should consider how long you need to or plan to work. If you only plan on working another 10 years, you may not need more than 10 years of life insurance coverage, and so on.
  2. Spouse’s Income Potential – If your spouse does not currently work, would he or she be able to if need be? What is his/her income earning potential based on experience and education?
  3. Consider Your Debt – It’s common to purchase life insurance to cover a mortgage, credit debt, or business loan. Consider how long the term of payments is. If your mortgage will be paid off in 30 years, do you really need whole life coverage? Why not just 30 year term?
  4. Consider Your Savings & Investments – If you are actively saving money, adding to your 401K or IRA, etc., and your debts are decreasing as mentioned in #3, your need for insurance may greatly diminish in a short period of time. Please consider all of the above when determining how much life insurance you need.

Inflation & Interest

Let’s say you determine that if you were to pass away today, your spouse would need $500,000 of life insurance coverage.

Well, here’s the problem…

Due to inflation, your spouse may need twice the amount as today if you passed 15 years from now.

Next, factor in the interest your beneficiary will earn on the death benefit proceeds.  As long as we assume your spouse won’t “stick it under the mattress”, we can assume they’ll earn some interest on the money, right?

And by adding this interest to the calculation, your spouse’s money will last longer, meaning you may be able to get by with less coverage.

*While we make every effort to keep our site updated, please be aware that "timely" information on this page, such as quote estimates, or pertinent details about companies, may only be accurate as of its last edit day. Huntley Wealth & Insurance Services and its representatives do not give legal or tax advice. Please consult your own legal or tax adviser.

Filed Under: Life Insurance

About Chris Huntley

Chris Huntley is a nationally recognized expert on insurance. Over the past 10 years, Chris has helped thousands of individuals find the right insurance solutions through his private practice and his publications. He is a proud husband and father to three adorable girls.

All Comments

  1. NINA on July 20, 2018, 6:30 pm

    I also filled out form for the quote in 1 min,but didn’t get any quotes only the we’ll be in touch message.

    Reply
    • Chris Huntley on August 1, 2018, 1:52 pm

      I apologize for that. Please call us at 888-603-2876 and we’ll get you a quote in just a few minutes.

      Reply
  2. Harold on January 5, 2016, 6:00 pm

    Just a question I’d like to get a $200,000 life insurance policy for my two children so that when I’m called home I can leave that for them. I am a smoker know since in lying about that. Although I’m going to hopefully be stopping soon. 26 years ago I hurt my neck which gave me some nerve damage so I retiredon ddisability. Other than that I’m healthy. I’m wanting to know an approx monthly charge an how long I must pay on it before it will pay out fully to my children. I do not want any phone calls right now I’m just thinking an making a plan at this time,Thank you kindly.

    Reply
    • Chris Huntley on January 16, 2016, 5:36 pm

      Hi Harold,
      I’ve forwarded your information to Justin Nelson to help you with your insurance needs

      Reply
  3. K.Brown on January 4, 2016, 2:27 pm

    No matter what criteria I enter it won’t generate a quote. But of course just like every other place..They will be contacting me…I don’t want contacted, I wanted a quote!!!

    Reply
    • Chris Huntley on January 16, 2016, 5:23 pm

      Sorry for your frustration. Rest assured no one will contact you. If you would like to contact us directly for a quote, please Feel free to call us at 888-603-2876

      Reply
  4. KarolBinyon on November 8, 2015, 9:19 pm

    Would like a Copley of quotes, I’ a 57 years lod, never have smoked or drank. I am on cholesterol medacation for one 15 years, 5’2, 131 lbs. Good cks. Great Cadio, checkups last ten years. Want 20 or 30 term life anywhere from $200,000. To $ 400,000., only owe about $27,000 on my home .No credit cards to pay off, just wanting good rate to leave for the best for my grandchildrn.

    Reply
    • Chris Huntley on November 8, 2015, 10:28 pm

      Hi Karol,
      I have forwarded your information to Jason Dana to assist you with your insurance needs

      Reply
  5. LEONARDO MONGE on September 3, 2015, 6:20 pm

    I need a life insurance of 500,000 aprox.. I am 58 year old, non smoker and very healthy. I need to cover a mortgage and taxes.

    Reply
    • Chris Huntley on September 7, 2015, 2:22 am

      Hi Leonardo.

      Ramon Summerour will be in touch with you to help you with your insurance needs

      Reply
  6. Susan on May 19, 2011, 12:02 pm

    This such a great tool – awesome idea and fantastic job by creating it!

    Reply
    • Chris on May 20, 2011, 11:39 am

      Thanks, Susan. I’m not genius on the computer, so it took quite a bit of hand holding to get this software onto my site. Quite the undertaking. Glad you find it useful. We’re excited to be able to offer it.

      Reply
      • Faisal on August 16, 2016, 3:13 am

        My name is Faisal and I am paralyzed because I can’t walk and I trust you that you help me

        Reply
        • Kimberly Ely on September 13, 2016, 10:59 am

          Hi Faisal, we have been in touch via email – but I haven’t heard from you in some time! Please let me know if you are still interested in some help!

          Reply

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