How Much Life Insurance Do I Need (If Any)? Cost Calculator, Term Vs Whole, & More

Sally JonesSeptember 20, 2022

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Pulling a life insurance benefit amount out of a hat just won’t cut it. There are many factors to consider in how to determine how much life insurance you need. We can help you be smart about your future financial planning for your family.

Table of Contents

Article Overview

Do I Need Life Insurance?
How Much Life Insurance Should I Buy?
Explanation Video
Life Insurance Calculator
How Much Can I Afford?

Do I Need Life Insurance?

Not everyone needs life insurance. Here are four situations in which you may not need life insurance:

You’re young and single
You have no one dependent on your income
You have ample workplace coverage
You have enough assets to cover all future expenses for your family

How Much Life Insurance Should I Get?

You may have heard about the rule of thumb to calculate your life insurance coverage. There are a few formulas that have made the rounds for years, but these are generally considered outdated. One such “old-school” rule of thumb is to multiply your income by 10.

Of course, this simple rule doesn’t take into account the many individual factors that affect your future finances. The consensus now is to follow a more comprehensive approach.

Calculate your current and future financial obligations, then subtract your assets to arrive at your ideal amount.

What Are Your Financial Obligations?

First, determine a ballpark figure of your current and known future financial obligations. Primary categories to consider include:

Income
Outstanding debts
Dependent expenses
College expenses
End-of-life expenses
Financial cushion

1. Income

Add your annual salary times the number of years that you expect to earn income.

2. Outstanding Debts

Calculate a total of your debt. If you die with outstanding loans, your survivors may be required to pay off all or some of this debt. These could include:

Mortgage and/or home equity loan
Auto loans
Business loans

3. Dependents

If you have children in childcare or private school or dependent adults that require financial assistance, you’ll need to factor these expenses into your calculations.

4. College Expenses

When determining college expenses, factor in tuition, room and board, textbooks and other associated costs. If your kids are young, it’s important to think ahead given the ever-rising costs of college.

5. End-Of-Life Expenses

You likely don’t want your family to bear the financial burden of such end-of-life expenses as funeral and burial costs. The average costs ranges from $5,000 to $10,000 or more.

6. Financial Cushion

If you want your family to maintain the quality of life you currently provide, you’ll need to figure this into your life insurance amount. Add together your monthly and fixed expenses, including your budget for clothing, food, vacations and more.

What Assets Do You Have?

Add together your assets, then subtract this figure from your financial obligations. Common assets include:

Savings accounts
Retirement plans
Existing college funds
Other investment plans
Current life insurance

Life Insurance Explanation Video

Life Insurance Calculator

Bankrate offers a free life insurance calculator that asks you six simple questions and calculates an estimate of how much you might need.

How Much Life Insurance Can You Afford?

Get A Free Life Insurance Quote

Finally, you need to make sure you can afford life insurance premiums. Some policies require you to pay an annual premium, while others provide monthly payment options.

You have two main options — term and whole life insurance. Term life insurance, which expires after a pre-determined number of years, is the cheaper of the two, averaging $350 per year. Whole, or permanent, life insurance can easily cost you twice (and often more) what you’ll pay for a term policy, but it covers you for life.

Be sure to read our comprehensive guide to life insurance, including the different types (term, whole and variations), when to get it, how to choose a company and more.