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Have you ever heard the saying that when it comes to life insurance, you should purchase enough coverage to equal ten times your current salary?

So that means if you earn $50,000 annually, you’d need to buy $500,000 worth of coverage using this logic. And if you make $150,000 every year, you’d need $1,500,000 in coverage.

While the math is simple enough to figure out, is it really true?

Unfortunately, it doesn’t always work like this in all cases. As with most general advice, a one-size-fits-all strategy doesn’t account for your specific life.

» Calculate: Life insurance needs calculator

A single 35-year-old without children earning an annual salary of $75,000, for example, most likely does not need $750,000 in life insurance coverage. Yet on the opposite end of the spectrum, a stay-at-home parent who technically doesn’t have a salary may need extra coverage since they save the family thousands of dollars in child care alone.

So is there an easy way to determine how much coverage you’ll need?

With the help of today’s article, you’ll be able to hone in on your specific coverage needs before you get a life insurance quote. This will help you find coverage that makes sense for your lifestyle and budget.

Your first step is to figure out how much coverage you really need—exactly where I’ll start today.

How Much Life Insurance Do I Actually Need?

1. How Much Coverage Do I Need?

It’s no surprise that you and your family currently rely on a steady stream of money, also known as income, to live on. Your paychecks provide a place to sleep and pay for groceries, clothing, schooling, doctor check-ups, and many other basic necessities.

But to determine how much coverage you need, you can’t just rely on your salary and your current paycheck amounts. Yes, it’s a great starting point to narrow down how much coverage you need, but what’s more crucial to consider is what your salary is really paying for.

Take a look at this example below:

Who Jane Smith Sally Doe
Age 40 40
Occupation Physical Therapist Accountant
Salary $80,000 $60,000
Family Husband (contractor) and two children (ages 12 and 10) Husband (teacher) and four children (ages 10, 8, 6 and 3)
Mortgage $350,000 15-year loan $250,000 30-year loan

At first glance, it may appear as if Jane would need more life insurance coverage than Sally because she has a higher salary and a larger mortgage.

However, Sally’s children are quite a few years younger than Jane’s so they will be dependent upon Sally longer than Jane’s children. Sally also has more children than Jane. If she passes away unexpectedly, it would likely take her husband longer (by several years) to become financially stable without Sally’s income to fall back on.

When we plug the math into our life insurance needs calculator, we discover that Jane should apply for $770,000 in coverage. Sally actually needs to apply for $850,000. (Note: These coverage amounts do not include the cost of providing college tuition.) Take a look for yourself.

Here is Jane’s estimated coverage needs:

screenshot of Quotacy life insurance needs calculator for $700,000

And here’s Sally’s:

screenshot of Quotacy life insurance needs calculator for $850,000

While you should think of life insurance as an income replacement, you have to look at the bigger picture and consider everything you need to pay for, including future expenses such as what happens in the next 10 years when your kids start to grow up.

Speaking of that, how long you’ll need to be covered is another key factor to take into account. I’ll touch on this next.

» Compare: Term life insurance quotes

2. How Long Do You Need to Be Covered?

There’s another big difference between Sally and Jane: How long they want coverage for—also known as the term length.

Not only will Sally need more coverage than Jane, but she should be insured longer than Jane.

Sally’s youngest child won’t be independent for at least 15 years. Even still, once Sally’s child becomes a legal adult, it doesn’t mean she’ll be financially independent. So Sally’s coverage length needs could extend much further. Plus, Sally’s mortgage won’t be paid off for another 30 years while Jane’s will be cleared in 15.

Considering all these factors, it’s in Sally’s best interest to purchase a 30-year term policy. Using our free calculator tool again, I’ve estimated that Sally’s monthly premium for a 30-year $850,000 term policy is $69.79, depending on her health.

screenshot from Quotacy needs calculator showing cost of $850,000 policy

Jane could also get a 30-year policy if she wanted, but she really only needs a 15- or 20-year term policy.

Here’s how her math works out:

screenshot from Quotacy needs calculator showing cost of $850,000 policy

Basically, you should purchase enough life insurance to ensure your family doesn’t struggle financially if you died during their most vulnerable years. And you should always buy life insurance as soon as you need it, not after.

That’s because term life insurance is:

  • Cheaper the younger you are
  • More inexpensive the fewer health issues you have

Let’s use our original example to give you an idea of this in action: Jane can purchase a 20-year $770,000 term policy right now for only $36 per month.

But what happens if she decides to postpone applying and then is suddenly diagnosed with a medical condition? Instead of being classified as low-risk by the insurance company, she’s now moderate- to high-risk, depending on the diagnosis.

You want to buy enough life insurance to ensure your family doesn’t struggle financially if you died during their most vulnerable years.

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Even if Jane postpones buying a few years and doesn’t develop a medical issue, her premiums will still be higher because she’s older.

Being older means you’re that much closer to death—it’s just a fact.

If Jane applies for a 20-year $770,000 term policy at age 45 instead of age 40, it impacts the cost.

screenshot from Quotacy needs calculator showing cost of $700,000 policy at age 45

This difference will adjust her rate so it will be much higher than her original quote.

However, if she had purchased her term life insurance policy right away, she would have locked in the low rate, in this case $36/month.

Instead of waiting for something to happen, you can prepare ahead of time while your risk is low.

To figure out your needs, I encourage you to check out our free calculator.

And if you’re ready to jump right into getting your life insurance quote, use our free quote tool. You’re only a few minutes away from great term life insurance.

» Learn more: How Long Should My Life Insurance Last?

Photo credit to: Alexander Dummer

About the writer

Headshot of Natasha Cornelius, a life insurance writer, for Quotacy, Inc.

Natasha Cornelius

Marketing Content Manager

Natasha is a writer and content editor at Quotacy. She is also co-host of Quotacy’s YouTube series. She can't get enough of life insurance and outside of work is also working toward her Chartered Life Underwriter designation. Connect with her on LinkedIn.