How much life insurance do I need?
Life insurance replaces what your family would lose if you died. This calculator uses a simple needs method, sometimes called DIME (debt, income, mortgage, education):
- Income – your yearly income times the number of years your family would depend on it, for example until the youngest child finishes school.
- Debts and mortgage – balances your family would need to pay off or keep paying.
- Education – future college costs for your children.
- Final expenses – funeral, medical and estate costs.
It then subtracts savings and investments your family could use and any life insurance you already have, such as a policy through work.
Term vs. permanent life insurance
- Term life – covers a set period, such as 20 or 30 years, and costs much less. It fits most families who need to protect income while children are young and the mortgage is large.
- Whole and universal life – lasts for life and builds cash value, but premiums are many times higher. It can help with estate planning or lifelong dependents.
Frequently asked questions
Is life insurance through my employer enough?
Often not. Group coverage is commonly one or two times your salary and usually ends when you leave the job, so many people add their own term policy.
Do stay-at-home parents need life insurance?
Yes. Replacing child care, cooking, transportation and household work can cost tens of thousands of dollars a year.
Is a life insurance payout taxable?
Death benefits paid to a beneficiary are generally not subject to federal income tax.