How Much Life Insurance Do I Need?

How Much Life Insurance Do I Need?

March 29, 2022

So, you've made the decision that is time to buy life insurance. But before you can buy life insurance you need to determine how much life insurance you actually need and how long you want to be covered for. 

Life insurance is a vital investment to protect your loved ones if you pass away. Too often, Americans are left to crowdsource funds to help pay for expenses when a loved one passes. Life insurance can help provide financial relief.  It pays more than just funeral expenses, although, this is the number one reason why people buy life insurance; it helps protect your family’s financial future. That’s why you can choose a wide range of death benefits, from around $100,000 to over a million dollars. The higher the death benefit you choose, the higher your life insurance premium will be.

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Reasons Why People Buy Life Insurance

Funeral expenses

- Transfer wealth

- Pay off a mortgage

- Supplemental retirement income

- Charitable gift

- Pay for children's college

- Replace loss income

So how do you determine how much life insurance is right for your family, without overpaying?  Your insurance adviser can provide specific guidance, but here are some general factors to consider. Keep in mind, at the end of the day the amount of life insurance you need comes down to you and your family's goals and budget. 

Pick Your Term 

How many years until you retire? This the simplest way to determine how long you need life insurance. The reason for this simple solution is because it is assumed that people will not depend on you financially once you retire. 

How Much Life Insurance Do You Need? 

An easy way to look at it is your salary multiplied by the amount of years until you retire. So, if you make $100,000 and you have 25 years left until you retire, you would need $2.5M. 

The DIME Method is a popular guide to determining how much life insurance you need. It takes some lifestyle factors into consideration. 

The DIME Method

This is a pretty standard method used to help determine the amount of life insurance you will need. DIME stands for debt, income, mortgage, and education.


Unfortunately, your debt doesn't die with you. How much debt will you leave to people? You will want to consider all debt that is not forgiven upon your death. This can include student loans, credit cards, and car loans, to name a few.


Multiply your income by the number of years you want to provide income replacement for your family. This could be until you would have reached retirement age, it could be until your youngest child reaches 18. That determination is something you would want to discuss with your loved ones. 

Other ways to calculate income:

- multiplying your annual income by six to 10. 

- how many years you have left to retire. This simple measure of how much life insurance you need is your annual salary times the number of years you have remaining to work. For instance, if you are 36 years old making $50,000 a year and you plan to retire at 65, you would purchase $1.4M in life insurance. 


Consider your mortgage balance and include it in your insurance total. 


Do you have children that will attend college? Calculate how much they will need for tuition, room and board, etc, into your life insurance total. 

There are other scenarios and factors to consider, but the DIME Method can you be a good starting point. 

You can also utilize our life insurance calculator to see how much you may need:

Other things or scenarios to consider: 


Standard of living

How much money will your family need to continue living as they do now?

To determine your standard of living, examine your yearly expenses — how much it costs to maintain your lifestyle. Do you take multiple vacations yearly? Belong to country clubs? Make monetary donations to organizations? Next, multiply that number by 20.

By calculating and considering your standard of living, your family can keep their usual level of income for years after you pass away.

Family goals

It’s also important to consider your family’s future goals. Do your children want to go to college? How many weddings would you want to pay for? Was your spouse planning on going back to school? Understand your family’s long-term goals and then build your insurance policy around those goals.

Things you can deduct from your life insurance total:

- Other life insurance: You may already have a life insurance policy or you have one through your job. You can consider removing that amount from you life insurance total. Keep in mind, you do want to be careful about taking your workplace life insurance into consideration - if you leave your job, get fired, or laid off you will lose that money.

Savings: Any savings that you have that is of significance and could be utilized by your loved ones could be subtracted from your life insurance total. 

Funeral expenses:  If you already have burial insurance you can deduct that from your life insurance total.

529 Savings Plan: If you have a 529 for your child's tuition you can also deduct this from your life insurance total. 

With careful consideration and the help of a trusted insurance adviser, you can ensure you have the right policy for you and your family in the years to come.

Blue Ridge Risk Partners is a top 75 independent insurance agency in the United States. With 21 offices through Maryland, Pennsylvania, and West Virginia and access to hundreds of carriers, we are able to meet your unique insurance needs.