How Much Life Insurance Should You Have?

No one likes to think about the inevitability of death. Even fewer consider the possibility of a sudden accidental death. In turn, not many people approach the topic of life insurance with a level head. By clearing up some of the misconceptions regarding life insurance and stepping into a logical mindset, anyone can find out how much and what kind of life insurance they need.

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Who Needs Life Insurance?

First of all, not everyone needs life insurance. Generally, there are two categories of people that do not necessitate it. Those that have no dependents fall into the first category. If someone has no children or spouse that needs caring for after they die, they do not have to worry about providing assets for them after their death. The second category of people is those that have enough assets to cover their debts and cost of dying. If they have property, stocks, or anything else of extremely high value, paying for life insurance is not necessary.

How Does Age Affect My Ability to Get Life Insurance?

The biggest misconception regarding life insurance is that it is harder to qualify in old age, so it must be purchased when young. While it is true that the premiums will be relatively cheap for a younger person, it is no easier to qualify for. The fact is that insurance companies will want higher premiums for older people who are at a greater risk, but if they are willing to pay for it, they can get it just as easy as a 20 year old athlete. However, a 25 year old with a devastating heart condition will likely pay more than a consistently healthy 50 year old. Basically, anyone can qualify at any age, but health factors will determine the price.

How Do I Determine How Much Life Insurance I Need?

The biggest part of choosing a life insurance policy is figuring out the amount the dependents will need after the holder passes. This face value, the amount the policy will pay, depends on a number of things.

The first factor is how much debt the owner will have at his death. While this cannot be known for sure, a financial advisor can help to figure out an estimate. Since all debts must be paid off in full, and no one wants to leave this burden to their family, the face value must cover at least this. For example, if someone has a $200,000 mortgage and a $5,000 car loan, the policy needs to pay at least $205,000. It is also wise to add a little extra to cover the mounting interest as well.

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The second factor is income replacement. When someone dies, their income obviously dies along with them. If someone generally has a substantial income, they will want their life insurance policy to reflect it in an effort to keep things “normal” for their family after their passing.

Future obligations are the important third factor. An older person may not have many future obligations to worry about. However, they may want to give some consideration to their spouse who may need a life insurance pay out to cover their own medical bills. An example of a future obligation would be a younger father who has 3 children high school aged or younger. He will likely expect them to attend college in several years, but if he passes, his salary will not be able to help them reach that dream. He should incorporate such investments in a future that he will not be there for into his life insurance when deciding how much he needs.

The final important factor when determining how much life insurance someone needs is who else they need to insure. A good rule of thumb is to only insure someone whose death would cause a financial loss. While it would be devastating to lose a child, it would not constitute a financial loss. However, a spouse that earns a substantial income would necessitate life insurance. If the first spouse dies, there should be enough in his/her life insurance payout to cover the cost of life insurance for the second spouse.

Figuring out how much life insurance someone needs is a relatively simple formula, but it is a good idea to meet with a financial advisor as this is such an important decision.

Life Insurance Chart: Recommended Coverage Based on Income and Years to Retirement

Based on research, we've put together this chart of recommended life insurance amounts based on age and income. While this chart is a useful guide, your circumstances may vary. Please consult with a financial advisor or life insurance expert about your particular situation.

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Annual Income
Years Until Retirement
5 10 15 20 25 30 35 40 45 50
$10,000 $65,000 $92,100 $132,100 $168,010 $201,000 $231,100 $250,000 $282,000 $300,000 $321,000
$15,000 $97,500 $138,150 $198,150 $252,015 $301,500 $346,650 $375,000 $423,000 $450,000 $481,500
$20,000 $130,000 $184,200 $264,200 $336,020 $402,000 $462,200 $500,000 $564,000 $600,000 $642,000
$25,000 $162,500 $230,250 $330,250 $420,025 $502,500 $577,750 $625,000 $705,000 $750,000 $802,500
$30,000 $195,000 $276,300 $396,300 $504,030 $603,000 $693,300 $750,000 $846,000 $900,000 $963,000
$35,000 $227,500 $322,350 $462,350 $588,035 $703,500 $808,850 $875,000 $987,000 $1,050,000 $1,123,500
$40,000 $260,000 $368,400 $528,400 $672,040 $804,000 $924,400 $1,000,000 $1,128,000 $1,200,000 $1,284,000
$45,000 $292,500 $414,450 $594,450 $756,045 $904,500 $1,039,950 $1,125,000 $1,269,000 $1,350,000 $1,444,500
$50,000 $325,000 $460,500 $660,500 $840,050 $1,005,000 $1,155,500 $1,250,000 $1,410,000 $1,500,000 $1,605,000
$55,000 $357,500 $506,550 $726,550 $924,055 $1,105,500 $1,271,050 $1,375,000 $1,551,000 $1,650,000 $1,765,500
$60,000 $390,000 $552,600 $792,600 $1,008,060 $1,206,000 $1,386,600 $1,500,000 $1,692,000 $1,800,000 $1,926,000
$65,000 $422,500 $598,650 $858,650 $1,092,065 $1,306,500 $1,502,150 $1,625,000 $1,833,000 $1,950,000 $2,086,500
$70,000 $455,000 $644,700 $924,700 $1,176,070 $1,407,000 $1,617,700 $1,750,000 $1,974,000 $2,100,000 $2,247,000
$75,000 $487,500 $690,750 $990,750 $1,260,075 $1,507,500 $1,733,250 $1,875,000 $2,115,000 $2,250,000 $2,407,500
$80,000 $520,000 $736,800 $1,056,800 $1,344,080 $1,608,000 $1,848,800 $2,000,000 $2,256,000 $2,400,000 $2,568,000
$85,000 $552,500 $782,850 $1,122,850 $1,428,085 $1,708,500 $1,964,350 $2,125,000 $2,397,000 $2,550,000 $2,728,500
$90,000 $585,000 $828,900 $1,188,900 $1,512,090 $1,809,000 $2,079,900 $2,250,000 $2,538,000 $2,700,000 $2,889,000
$95,000 $617,500 $874,950 $1,254,950 $1,596,095 $1,909,500 $2,195,450 $2,375,000 $2,679,000 $2,850,000 $3,049,500
$100,000 $650,000 $921,000 $1,321,000 $1,680,100 $2,010,000 $2,311,000 $2,500,000 $2,820,000 $3,000,000 $3,210,000
$105,000 $682,500 $967,050 $1,387,050 $1,764,105 $2,110,500 $2,426,550 $2,625,000 $2,961,000 $3,150,000 $3,370,500
$110,000 $715,000 $1,013,100 $1,453,100 $1,848,110 $2,211,000 $2,542,100 $2,750,000 $3,102,000 $3,300,000 $3,531,000
$115,000 $747,500 $1,059,150 $1,519,150 $1,932,115 $2,311,500 $2,657,650 $2,875,000 $3,243,000 $3,450,000 $3,691,500
$120,000 $780,000 $1,105,200 $1,585,200 $2,016,120 $2,412,000 $2,773,200 $3,000,000 $3,384,000 $3,600,000 $3,852,000
$125,000 $812,500 $1,151,250 $1,651,250 $2,100,125 $2,512,500 $2,888,750 $3,125,000 $3,525,000 $3,750,000 $4,012,500
$130,000 $845,000 $1,197,300 $1,717,300 $2,184,130 $2,613,000 $3,004,300 $3,250,000 $3,666,000 $3,900,000 $4,173,000
$135,000 $877,500 $1,243,350 $1,783,350 $2,268,135 $2,713,500 $3,119,850 $3,375,000 $3,807,000 $4,050,000 $4,333,500
$140,000 $910,000 $1,289,400 $1,849,400 $2,352,140 $2,814,000 $3,235,400 $3,500,000 $3,948,000 $4,200,000 $4,494,000
$145,000 $942,500 $1,335,450 $1,915,450 $2,436,145 $2,914,500 $3,350,950 $3,625,000 $4,089,000 $4,350,000 $4,654,500
$150,000 $975,000 $1,381,500 $1,981,500 $2,520,150 $3,015,000 $3,466,500 $3,750,000 $4,230,000 $4,500,000 $4,815,000
$155,000 $1,007,500 $1,427,550 $2,047,550 $2,604,155 $3,115,500 $3,582,050 $3,875,000 $4,371,000 $4,650,000 $4,975,500
$160,000 $1,040,000 $1,473,600 $2,113,600 $2,688,160 $3,216,000 $3,697,600 $4,000,000 $4,512,000 $4,800,000 $5,136,000
$165,000 $1,072,500 $1,519,650 $2,179,650 $2,772,165 $3,316,500 $3,813,150 $4,125,000 $4,653,000 $4,950,000 $5,296,500
$170,000 $1,105,000 $1,565,700 $2,245,700 $2,856,170 $3,417,000 $3,928,700 $4,250,000 $4,794,000 $5,100,000 $5,457,000
$175,000 $1,137,500 $1,611,750 $2,311,750 $2,940,175 $3,517,500 $4,044,250 $4,375,000 $4,935,000 $5,250,000 $5,617,500
$180,000 $1,170,000 $1,657,800 $2,377,800 $3,024,180 $3,618,000 $4,159,800 $4,500,000 $5,076,000 $5,400,000 $5,778,000
$185,000 $1,202,500 $1,703,850 $2,443,850 $3,108,185 $3,718,500 $4,275,350 $4,625,000 $5,217,000 $5,550,000 $5,938,500
$190,000 $1,235,000 $1,749,900 $2,509,900 $3,192,190 $3,819,000 $4,390,900 $4,750,000 $5,358,000 $5,700,000 $6,099,000
$195,000 $1,267,500 $1,795,950 $2,575,950 $3,276,195 $3,919,500 $4,506,450 $4,875,000 $5,499,000 $5,850,000 $6,259,500
$200,000 $1,300,000 $1,842,000 $2,642,000 $3,360,200 $4,020,000 $4,622,000 $5,000,000 $5,640,000 $6,000,000 $6,420,000
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