Figuring Out How Much Term Life Insurance You Need

You know that life insurance is important when you want to protect your family. Term life insurance is desirable because it offers a relatively high amount of coverage for a fairly low price. However, just knowing that you can find online insurance quotes for low priced term life insurance doesn’t help you figure out how much you need. Before getting your term life quotes, be sure to know how much life insurance you will need to adequately protect your family’s financial well being.

Factors that Influence How Much Life Insurance You Need

When determining how much term life insurance coverage you need, it is important to consider a number of factors. There are rules of thumb about life insurance coverage, but the bottom line is that these rules don’t take into account the individual needs of your family. Some of the factors to consider include:

  • How long your spouse will need to provide for your children
  • Annual expenses of the household
  • Your annual income
  • Whether or not your spouse will work if you are gone
  • The need for child care and other services
  • Amount of debt you want to pay off
  • Whether you want the family to stay in the house by the insurance money paying off the mortgage
  • Estimated cost of funeral expenses and settling the estate
  • Your intention to pay for your children’s continuing education

When deciding how much term life insurance to get, you should figure out what you want to cover. Many families decide that life insurance should pay off debt and then provide enough to cover expenses until the youngest is of age. Of course, the older the covered person gets, the less is needed, and that means that the money can then be used for something else.

In the most basic example – one that ensures that the family’s financial needs are covered in the even of your death – you pay off debt and then provide for expenses. If you have $10,000 in debt, a $12,000 car loan and a $170,000 mortgage, you want to make sure that those costs are covered. If you expect your funeral to cost $8,000, that must be taken into account, as well as your desire to provide the $45,000 a year your family spends on household expenses each year. If your youngest child is 6 years old, you will need a policy that lasts at least 12 years (so at least a 15 or 20 year policy).

Now it’s time to add it all up. Start with covering expenses. 12 x 45,000 = $540,000. Next, add in the debt to get 540,000 + 10,000 + 12,000 + 170,000 = $732,000. Add on the $8,000 for the funeral and you get $740,000. You will likely have to get more than that, since many life insurance policies come in specific intervals. But you can see the basics of figuring how much you need. If you want to cover other costs, you keep adding them to your final. If you assume that your spouse will be able to work, you may not pay off the mortgage, and reduce the amount needed to cover expenses, since income from that job should help meet those obligations.

In the end, it’s about figuring out what will work best for your family, and then getting the term life insurance policy that meets those needs.




Miranda Marquit is a professional blogger specializing in personal finance. She writes for numerous web sites, including, a site specializing in online insurance quotes, and her own blog at the Personal Finance Corner.