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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?

Using this logic, that means if you earn $50,000 annually, you’d need to buy $500,000 worth of coverage. 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 circumstances.

» Calculate: Life insurance needs calculator

For example, a single 35-year-old earning an annual salary of $75,000 and doesn’t want children, 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 every month.

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 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:

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
Current Life Insurance $50,000 (employer plan) $50,000 (employer plan)

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 on 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:

Quotacy life insurance needs calculator showing $750,000

And here’s Sally’s:

Quotacy life insurance needs calculator showing $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.

See what you’d pay for life insurance

Comparison shop prices on custom coverage amounts from the nation’s top carriers with Quotacy.

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 Quotacy’s life insurance quoting tool, I’ve estimated that Sally’s monthly premium for a 30-year $850,000 term policy is $63.05, if she’s in good health and a non-smoker.

Quotacy quoting tool showing $850K 30 year term

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:

Quotacy quoting tool showing $750 K 20 Year 40 year old

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 because term life insurance is:

  • Cheaper the younger you are.
  • Cheaper 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 $750,000 term policy right now for only $33 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. Life insurance premiums are based on the applicant’s overall risk.

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 $750,000 term policy at age 45 instead of age 40, it impacts the cost. Waiting just those five years increased the monthly quote by $18. This adds up over time. And what if something happen to Jane between the ages of 40 and 45?

Quotacy quoting tool showing $750 K 20 Year 45 year old

However, if she had purchased her term life insurance policy right away, she would have locked in the low rate of $31 per month.

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

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

What About Stay-at-Home Parents?

As mentioned earlier, stay-at-home parents should have life insurance coverage as well.

Figuring out how much coverage to purchase on a stay-at-home parent is a little trickier since there is no salary to consider. However, most insurance companies will approve coverage on a stay-at-home parent up to the maximum amount of coverage that the working parent has.

For example, if the working parent has $500,000 in term life insurance coverage, the stay-at-home parent can typically qualify for up to $500,000 as well.

Every family situation is different. When planning for coverage on a stay-at-home parent, consider all the different tasks he or she does during the day. The things that, if this person died, you would have to hire someone to do or take time away from work to do yourself.

Day care is likely the most expensive expense a stay-at-home parent saves a family money on. But also consider housekeeping, transportation, and cooking.

While every family is different, every family should have financial protection. Term life insurance is an affordable option and can be life-saving when a family loses a provider. 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.

About the writer

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

Natasha Cornelius, CLU

Senior Editor and Licensed Life Insurance Expert

Natasha Cornelius, CLU, is a writer, editor, and life insurance researcher for Quotacy.com where her goal is to make life insurance more transparent and easier to understand. She has been in the life insurance industry since 2010 and has been writing about life insurance since 2014. Natasha earned her Chartered Life Underwriter designation in 2022. She is also co-host of Quotacy’s YouTube series. Connect with her on LinkedIn.