You’ve probably seen one of those commercials. Did you know that we can find you a $250,000 life insurance policy for just $10 per month? The price sounds great. And, without giving it much thought, a quarter of a million dollars probably seems like a great deal of money. And maybe it is the right amount for you. Maybe it’s more than you need. But, maybe it’s less than you really need. How do you decide? There are several factors to consider when calculating the appropriate amount of coverage.

Debt Load

For many people, one of the biggest concerns is ensuring that there would be enough money available to retire major debt, such as a mortgage, student loans, and possibly business loans if they were to pass away. Allowing your spouse or family to eliminate the large debt items that may be hanging over their heads in your absence gives financial freedom that may be necessary for this type of situation. Perhaps your family feels the need to move closer to extended family members, but a mortgage on the existing house could prevent that from happening. At a minimum, a life insurance policy should cover all of your major debt.

Income Replacement

According to a 2015 study by Life Happens and LIMRA, 43% of Americans say they would feel the financial impact of the loss of the primary wage-earner within 6 months. This result certainly indicates a need for primary wage-earners to protect against the loss of their income to their family with life insurance (and likely disability insurance, too). Depending on an applicant’s age, insurance companies will allow the applicant to purchase perhaps up to 30 times one year’s income. While this may be a necessity for some, it is likely that looking at around 10 times one year’s income will both allow the family to start recuperating emotionally and have needed financial protection to transition to the new family dynamic without the wage earner.


Do you have kids that are likely to go to college someday? Do you have that 529 plan all paid up? What is the estimated cost of college when your child gets there? For pennies on the dollar, it is possible to include higher educations costs in your life insurance death benefit. Even if you are putting away money for the tuition bills, it is a work in progress for most people. If a parent were to pass away before the plan is funded the way you intend it to be, it may become difficult to do so without the help of a life insurance payment.

In most cases, these three topics are the ones that help answer the question of how much life insurance is needed. To be sure, there are other areas that are of importance in given situations, such as leaving funds to a charity, protecting a business against the loss of an owner or key employee, and having money available for final expenses. How detailed you get with your calculation depends on your situation.

Also, needs change over time. Just because you purchased a policy several years ago or you have a basic amount of coverage through your current employer doesn’t mean you have protected your loved ones properly. Here’s an online calculator to help if you need it.

For most, life insurance seems abstract. It is something that you pay for but will never personally use. But for those who lose a loved one, having the right amount of life insurance can mean the difference between financial comfort and financial ruin.