For better or worse, you know you’re really an adult when it’s time to buy life insurance.
For me, it was immediately after having our daughter, Molly. I bought a term life insurance policy so that, in the event the unspeakable happens, my wife, Lauren, wouldn’t have to worry about making ends meet or paying for Molly’s education after I’m gone.
But as I set out to shop for life insurance, I didn’t really know how much life insurance I even needed.
In case you’re like I was, we’ve put together a simple life insurance calculator to help you determine the right amount of term life insurance to buy.
Calculator: How Much Life Insurance Do You Need?
How to Determine How Much Life Insurance You Need
How much life insurance you need is both somewhat subjective and a moving target. Your life insurance needs may be quite different today versus in five years.
Put simply, in the event you die, you want life insurance payouts to allow your spouse and children to continue their lifestyles without worrying about money. You may also want to provide for future expenses like your children’s education.
If you have investments or other assets, however, you may only need enough life insurance to make up the difference between your assets and your family’s potential needs.
Here’s a simple calculation, which is similar to what we use in our life insurance calculator above.
1. Annual income to replace: ________________
2. Predicted retirement age: ________________
3. Current age: ________________
4. Years until retirement (line 2 – line 3): ________________
5. Total income to replace (line 1 x line 4): ________________
6. Amount for children’s education: ________________
7. Amount to pay off mortgage or other liabilities: ________________
8. Total amount needed (sum of lines 5-7): ________________
9. Existing nonretirement assets: ________________
10. Existing life insurance in force: ________________
11. Life insurance needed: (line 8 – sum of lines 9-10): ________________
As you get older, earn more money, have kids, and live a correspondingly more expensive lifestyle, how much life insurance you need will go up — to a point. As you get closer to retirement age and accumulate more wealth in savings and investments, you will need less life insurance to make up the difference.
Read more: The Average Cost of Life Insurance by Age
Other Considerations when Buying Life Insurance
Paying Off Mortgages and Other Liabilities
In the event of your death, you may want to ensure that your surviving family doesn’t have to worry about a mortgage or other debts. Although they could continue making payments using the annual income from the life insurance payout, you may want to leave them with enough to pay off the debts right away.
Many lenders sell insurance policies that will pay off the loan balance in the event of death, but it’s typically more affordable to get a higher-value traditional life insurance policy.
If you have student loans or other obligations that were co-signed by somebody other than your life insurance policy’s beneficiary (for example, a parent), you’ll also want to ensure the life insurance policy provides enough to repay this balance, so the co-signer isn’t saddled with the remaining debt after your death.
Ask your insurer if they will allow you to designate multiple beneficiaries with specific amounts. If not, you’ll need to draft a will that stipulates who gets what.
Where to Buy Life Insurance
If you want an easy way to start looking for life insurance, check out Policygenius. They now offer term life insurance that requires no medical exam.
They’ve partnered with Brighthouse SimplySelect℠ to offer policies with up to $2 million in coverage, and you’ll get the same low premiums you get with companies that do require an exam.
To get started, call a Policygenius agent and take their over-the-phone questionnaire. Once you’ve done that, you can get insured in as little as three to four days.
If you need to get life insurance quickly and don’t want to deal with a long waiting period, Bestow is another great option.
Bestow offers no-medical-exam life insurance and instant approvals. All you have to do is provide some basic information and Bestow takes it from there, using big data to issue a quote.
Bestow issues life insurance policies through the North American Company for Life and Health Insurance.
Ladder offers affordable term life insurance that’s easy to understand and quick to set up online. It only takes a few minutes to apply for coverage and you can get an instant decision.
Ladder’s policies are issued by reputable providers, including Fidelity Security Life Insurance and Allianz Life Insurance Company of New York.
So, how much life insurance do you need? Enough to allow your surviving dependents to live their current lifestyle for a determined amount of time.
Typically, you’ll want your life insurance to provide for your children until they turn 18. You may also want to provide for your spouse until they reach retirement age. However, you may also need less life insurance coverage if you already have assets, such as investment accounts.
Overall, how much life insurance you need is a personal decision that you should make with your spouse and financial planner, if you have one (if you don’t, check out our handy tips for finding the right financial advisor for you).