Life insurance
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Life insurance: How much coverage do you need?

Beneficiaries can get the financial support they need to replace the policyholder’s income and cover expenses after they’re gone with life insurance. However, those considering getting a life insurance policy may be wondering how much coverage they need. Read on to learn how to calculate life insurance needs and some types of policies to choose from.

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How to calculate life insurance

A common formula for calculating how much life insurance someone needs is to multiply their annual income by 7 to 10 times. This number can give the policyholder a target amount for the life insurance payout they need.

But keep in mind that this amount can be affected by what type of policy someone is choosing, along with how much they want to pay in premiums.

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Types of life insurance policies

Here are some different types of life insurance policies and how policyholders can figure out how much coverage they need for each:

Term life insurance

Term life insurance is a life insurance policy that will provide beneficiaries with a death benefit payout if the policyholder passes away while the policy is active. Term life insurance is available in term lengths ranging from 10 to 30 years and comes with affordable monthly premiums.

In general, multiplying the policyholder’s salary by 7 to 10 times is a good rule of thumb for term life policies. But other factors someone may want to consider are how much of a premium payment fits their budget and how many dependents they’ll want to ensure financial support for.

If the policyholder wants a cheaper premium, they may opt for a policy with a lower death benefit amount. On the other hand, if someone has multiple dependents, they may want to target a death benefit amount greater than the estimate the formula above gives them.

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Whole life insurance

Whole life insurance is a permanent life insurance policy that offers lifelong coverage. This means that the policy remains in force as long as premiums are paid and loved ones receive a guaranteed death benefit payout when the policyholder passes away. Whole life insurance also comes with a cash value growth component that can help the policyholder build wealth over time.

Determining how much whole life coverage is needed can begin with the same base calculation as term life policies. However, since whole life policies also build savings while the policyholder pays their premiums, they may want to consider adding more or less to this number depending on their savings goals for the life insurance policy.

The policyholder’s plans for their estate and savings can change how much whole life policy coverage they opt for. More coverage will mean higher premium payments, a factor to consider in overall calculations and budgeting.

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Final expense insurance

Final expense insurance is a permanent life policy designed to cover end-of-life expenses. This type of policy will typically give beneficiaries a smaller death benefit payout than term or whole life insurance and often comes with more affordable premiums.

Calculating a final expense insurance policy will stray a bit from the typical life insurance formula since this type of coverage is only meant to cover the costs associated with funerals, memorials, cremations, and other related expenses. Final expense payouts will typically max out at around $50,000, and the right amount of coverage for the policyholder may depend on their funeral and final plans. 

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The bottom line

When figuring out how much life insurance coverage the policyholder will need, 7 to 10 times their annual income can be a good general estimate. But as the policyholder considers their unique needs, they’ll start to understand how they can adjust that formula. As long as the policyholder does their research on what policy works for them and their budget, they can reach a solid estimate for the right coverage to provide for their loved ones.

This content was issued through the press release distribution service at


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