How much life insurance do I need? (2024)

FAQs

What is a good amount of life insurance? ›

A common rule of thumb is at least 6% of your gross income plus 1% for each dependent. A stay-at-home parent should get enough life insurance to cover the costs incurred by the family if anything should happen to them.

Most insurance companies say a reasonable amount for life insurance is at least 10 times the amount of annual salary. If you multiply an annual salary of $50,000 by 10, for instance, you'd opt for $500,000 in coverage.

The life insurance coverage amount should be enough to support your family financially after you, while its premium fits well into your regular expenses. It is recommended to have life cover of at least ten times the annual income. While it is a good reference to pick, you should check what suits your profile the most.

And, while there is a wide range of coverage limits, a $100,000 life insurance policy is a common choice for many people. That's because a policy with a $100,000 benefit amount offers a significant payout to beneficiaries — allowing them to take care of the necessary expenses that arise after you're gone.

According to current estimates, a $1 million term life insurance policy for a healthy 40-year-old nonsmoker costs around $80 to $100 per month. The cost of life insurance can vary based on age, health, type of policy, and other factors.

If you're experiencing financial difficulties or your life insurance policy has fulfilled its primary need to protect you when you need it most, such as protecting your mortgage payments until you pay off your home, you may find that ending your policy is the best course of action.

The DIME Formula (and 10 Rule)

The old “how much life insurance do I need” rule of thumb was to take your income and multiply it by 10.

If you only need coverage for a few years while your children are growing up, for example, then term life insurance may be the right choice. But if you want lifetime coverage and the ability to build cash value, then consider whole life insurance.

Cons explained

No cash value: Premiums go solely toward coverage, meaning no portion is saved or invested for future use. Premiums may rise if renewed: Renewing for another term is often more expensive because your age has increased and your health conditions may have changed.

The straight answer to this question is as soon as you start working. There are multiple reasons for this. Anyone between the ages of 18 to 65 can opt for term insurance. However, your 20s is a good time to get into the insurance market and plan for your family's future.

Do I really need term life insurance? ›

When is term life insurance worth it? Term life insurance is smart when you have debts or a time-boxed expense — something you want to ensure your dependents can afford should you pass away. This might include a mortgage or credit card balance, for example, or something like school tuition or car payments.

If you're single or you have other sources of wealth to protect your family, then you may not need life insurance. But if you're like most people, you will have mortgage payments, college expenses or the need to protect your family from the loss of earnings if you pass away.

Wealthy individuals with a net worth over $1 million can use life insurance to provide for their loved ones in the event of their death, as an investment vehicle, or as protection against estate taxes. Katherine Murbach.

The average cost for a million-dollar life insurance policy is anywhere from approximately $50 to more than $1,000 a month, depending on your age, health, annual income, policy type and other factors.

A $500,000 life insurance policy with a 10-year term costs an average of $62.99 per month for a smoker, compared to $29.26 per month for someone in poor health or $26.88 for someone with a high BMI. This compares to the same rate for a healthy individual, which would cost around $18.44 a month.

For someone, $500,000 in life insurance might be more than enough while others may benefit from having a $1 million life insurance policy instead. Asking yourself what your policy might need to do can help you narrow down what amount of coverage is appropriate.

MoneyGeek analyzed $100,000 life insurance policies to determine the average premium for 10- and 20-year term lengths. The average monthly cost of a $100,000 life insurance policy for a 10- or 20-year term is $11.02 and $12.59, respectively.

A $500,000 life insurance policy may provide enough coverage to take care of your family and expenses like mortgage and kid's college costs if you die unexpectedly.

That means a $2 million dollar policy could be a good fit for someone whose annual salary is $200,000 to $400,000. You might also want to consider that much coverage if you have extensive mortgage or other debt, or if you're the primary breadwinner in your family.