Updated: June 2025
Life insurance is considered the most prudent of financial decisions. However, you may ask yourself what level of life cover would be perfect. Insufficient cover might lead to financial trouble for your relatives. On the flip side, too much could be detrimental to your financial situation.
This 2025 guide is tailor-made to compute the amount of life insurance that suits your financial goals, income, and financial obligations.
🧾 Why Life Insurance Matters
Life insurance ensures the financial security of your family members after your death. It can be used for the following purposes:
- Get rid of the mortgage
- Always have the budget for daily expenses
- Savings for children’s education
- Security for debts or final expenses
- Receiving a salary from a different place
But what number is the right number and what number is inadequate? Let’s discuss it in detail.
🧮 Rule of Thumb: 10 to 15 Times Your Income
The general standard for life insurance embraced by most financial professionals is coverage that equals 10 to 15 times one’s annual income.
Example:
If your yearly salary is $60,000:
👉 $60,000 × 15 = $900,000 coverage
✅ This amount is usually enough to replace the lost income, settle the debts, and guarantee your family’s financial security.
📊 Step-by-Step Life Insurance Calculator
Have a look at a simple method for computing your life insurance requirement:
1. Annual Income Replacement
Find the product of your yearly income and the number of years that your family would lack financial support.
$Income/year × Years of Support = $___
2. Outstanding Debts
First, calculate the sum for mortgages, student loans, credit card debt, car loans, etc.
Total Debts = $___
3. Future Goals
Things like paying off your children’s college tuition or family events can be mentioned.
College Fund + Emergency Fund + Goals = $___
4. Final Expenses
Include the cost of a funeral and burial, which is usually around $10,000–$15,000.
Final Expenses = $___
5. Subtract Existing Assets
Deduct your current savings, investments, or other policies from the total amount.
Total Needs – Existing Assets = Recommended Coverage
Example Calculation (for a 35-year-old parent)
| Category | Amount |
|---|---|
| Income Replacement (15 years) | $900,000 |
| Mortgage Balance | $200,000 |
| College Fund for Kids | $120,000 |
| Final Expenses | $15,000 |
| Total Need | $1,235,000 |
| Minus Existing Savings | -$85,000 |
| Coverage Needed | $1,150,000 |
🤔 Other Factors to Take into Account
- Age: The protection of younger individuals against potential risk for relatively longer time may increase the need for cover by more years.
- Dependents: With the family consisting of more kids, there is an increased risk, which in turn creates a higher need for life insurance coverage.
- Spouse’s Income: If both spouses in a family are gainfully employed, it implies that the family’s required amount of income is less or that they probably could survive without the entire amount of income of the other in case of