• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

Free From Broke

A Personal Finance Blog for Regular Folks

  • Home
  • Personal Finance
  • Debt
  • Saving
  • Investing
    • Best Online Brokerages
  • Taxes
  • Credit Scores
You Are Here: Home » Insurance » Why Do I Need Life Insurance and How Much Should I Buy?

Why Do I Need Life Insurance and How Much Should I Buy?

Published or updated September 9, 2014 by Glen Craig

I think it’s safe to say most people don’t like the idea of thinking about life insurance.

It’s a reminder that, after all, we’re mortal and one day we won’t be around anymore.  In fact the subject bothers some people so much that they don’t even look into getting life insurance.

But you won’t do that, will you?

To help make getting life insurance easier for you I’m going to tackle a couple of common questions when considering life insurance — why do i need life insurance and how much should I buy?

When Most People Start Thinking About Life Insurance

Life insurance isn’t needed for everyone at every stage of your life.  But there tends to be a few times when people get particularly interested in getting life insurance.

According to a recent State Farm survey (go take a look over at GoodNeighbors.com), 4 out of 10 people will buy life because of a life event such as getting married, buying a house, or having a baby.

Having children is what got my wife and I thinking about life insurance.  We each wanted to make sure the other would be taken care of should something happen to one of us (or the kids would be cared for should we both leave pre-maturely).

Let’s get back to how much life insurance you’ll need.

The two biggest aspects we’ll consider here are why you need life insurance and how much you need to cover with it.

Before we look at how much life insurance you should get let’s first look at why you want the life insurance in the first place.  This will help us in figuring out how much you need.

Why do I need life insurance and how much should I buy?

Why You Want Life Insurance

Income Replacement for Those That Depend on You

This is one of the most common reasons to get life insurance.  You want it so that people who would normally depend on your income will be able to take care of themselves after you’re gone.  Usually this is your spouse and children.

What you’re basically doing here is getting life insurance as income replacement since you were the wage earner.  Take into consideration any income your spouse has as well.  You may only need to cover part of your income if your spouse has significant income.

If you’re replacing income to provide for your children you’ll only need it until your youngest turns 18 or until she finishes college.  The assumption is they can start their own careers and pay for themselves after that time.

To Payoff Debts and Expenses

At first this sounds like a strange reason.  Why would you need money to payoff debts after you’re gone?

This goes back to leaving money for those that depended on you.

Similar to income replacement, this reason looks at leaving enough money to cover any outstanding debts you may have, the biggest one here probably being a mortgage.

You can also use your life insurance to cover your “final expenses.”  By that I means expenses like funeral costs, hospital expenses, or estate taxes.

As an Inheritance

Some people want life insurance as a means to leave an inheritance to those they are leaving behind.  The money isn’t to specifically pay for anything.  It’s to make sure your heirs have a little something and are comfortable.  Even if your spouse works you may want them to be able to not worry about going back to work.

Child and House Care of a Stay-at-Home Spouse

The stay-at-home spouse provides incredible value to the household.  If you have children you might want to consider what it would cost to care for the kids if the stay-at-home spouse we no longer there to care for the household.  You might need to cover things like daycare in order to get by.

College Savings

One way people use life insurance is as a means to help their children pay for college.  You can be confident college costs are taken care of even if you won’t be around to see them graduate.

A Mix of These Reasons

No one if these reasons are necessarily the right one for you.

First, you may have other reasons for life insurance I didn’t mention here.  That’s fine.  This is a guideline of some of the more popular reasons.

Second, it’s OK if you combine different reasons in figuring out how much life insurance you need.  The point in this first exercise is to see why you want the life insurance.  Once you have your reasons you can better determine how much you’ll need.

How Much Life Insurance You Need

Once you know why you want life insurance it gets easier to estimate how much life insurance you need.

There are some general rules of thumb, such as getting seven times or 10 times your yearly salary in coverage, but, really, how much life insurance you need comes down to your personal financial situation, and what you hope your life insurance will accomplish.

Another tool is to look at your income, debts, and any other monetary amounts your heirs may need after you’re gone and then figure out how much total capital you would need in an income-producing portfolio to produce that amount every year, taking out 4% for your yearly needs.

If you earn $50,000 a year, your family would need $1.25 million in capital.  According to different economic theories, this method would ensure that money lasts indefinitely.  You might want to add that number to estimated funeral expenses and your debt repayment amount so that your family has the needed capital after everything is taken care of.

Another way to figure out what your family needs is to add up yearly expenses or income, and figure out how long they would need to be provided until your youngest child is of age (if you were looking to provide income for your children if you were gone).

If you make $50,000 a year — and assume that you spend that much — and your youngest is five years old, you would need to figure $50,000 a year for 13 years (until the youngest turns 18).  In our example, that would be $650,000.  You can then add other expenses that you have, such as debt pay off, funeral expenses and other things you would like to pay for (such as college costs) to the base income replacement number.

When you are looking at how much life insurance you need make sure to take retirement account contributions (this could lower the amount you’d need), the cost of benefits (like health insurance), and the cost of services that might need to be hired (like child care or housekeeping) into consideration.

Again, this all depends on your reasons for the money.  You wouldn’t need the same amount to cover college costs as you would as income replacement or debt repayment or if you just want to cover funeral costs.

What About Life Insurance I Get From Work?

A lot of employers offer up life insurance.  Many times though this life insurance renews year-to-year and depends on you still working there (the plan may not be portable or be expensive if it is).  Think of insurance from employers like this as icing on the cake and not as a big part of your calculations.

Final Word On How Much Life Insurance You Should Buy

You may not want to think about not being around anymore but making a plan now can ensure your loved-ones are taken care of.  It’s a pretty good feeling to know your family won’t have to worry about money as they mourn.

We didn’t go into the different types of insurance that are out there such as term vs. whole life insurance or other products like universal and hybrids but the typw you buy may have an impact on your calculations.

When you ask yourself ‘how much life insurance should I buy?’ take a look at the reasons you want life insurance and you have a good starting point in estimating your needs.

Have Life Insurance?  How Did You Figure Out Hoe Much You Needed?

Disclosure: This blog post was written as part of a sponsored program for State Farm to raise awareness about the importance of life insurance. All views expressed are entirely my own, and were not influenced or directed by State Farm. You can learn more about this blogger program and life insurance at GoodNeighbors.com, PlantingMoneySeeds.com, and by following #StartLiving on Twitter.

Summary
Why Do I Need Life Insurance and How Much Should I Buy?
Article Name
Why Do I Need Life Insurance and How Much Should I Buy?
Description
When you think about life insurance one of the first questions will be 'how much life insurance should I buy?' Read on and I'll show you why the reason is the first thing to consider.
Author
Glen Craig

Filed Under: Insurance

About Glen Craig

Glen Craig is married and the father to four children that he spends the day chasing as a stay-at-home-dad. He took an interest in personal finance when he realized most of his paycheck was going toward credit card bills. Since then he's eliminated his credit card debt and started on a journey towards financial freedom.

Reader Interactions

Comments

  1. Taylor Lee says

    September 9, 2014 at 6:35 am

    I don’t have life insurance now (no dependents) but I expect once I do get married, have a kid I’ll probably look into getting 20-25x my salary’s worth of insurance (so it could be used in perpetuity). Not sure how much that would cost though… that really might be the limiting factor here.

    • Glen Craig says

      September 14, 2014 at 9:04 pm

      Stay in good health and shop around. Also the sooner you get life insurance it’s generaly the better in that rates go up as you get older.

  2. Michelle says

    September 9, 2014 at 10:02 am

    We don’t have life insurance right now. We lost the little bit we had when we quit our jobs to work for ourselves and have been lazy and not looked into it yet. We definitely want to do this soon though.

    • Glen Craig says

      September 14, 2014 at 9:02 pm

      That’s the thing when you have life insurance through work, it may not be there if you leave the job.

    • leahfreyze says

      August 18, 2020 at 1:40 pm

      sex braunschweig is my favorite place for spending quality time with amazing girls

  3. Jean says

    September 15, 2014 at 11:53 pm

    Thanks Glen, I don’t have life insurance now but you gave me something to think about. So glad I found your blog. I really liked your talk video conference on College Funding with a few other people adding their thoughts and ideas. That was a good issue for me. If only my daughter would listen to me! Right? She’s done with school now but she didn’t take my advise on career choices. You always seem to have something in your blog that helps me get a better understanding on finance issues. I always ran the other way, now I stay and listen.

Primary Sidebar

A Little About Me

Glen CraigI'm Glen Craig - I used to live paycheck-to-paycheck, drowning in credit card debt. I turned that all around and now I build wealth rather than debt.

My goal is to make personal finance easy for you.

More ABOUT me.

Join our email list (FREE) and never miss an article!


Free From Broke as seen on

Follow Us

FacebookGoogleTwitterRSS



Follow @freefrombroke

Top Articles

  • Use Google Calendar To Pay Your Bills On Time
  • 9 Things to Do When You Retire
  • Side Hustle-Make Extra Money Cleaning Homes
  • Four Ways You Can Pay Off Your Home Mortgage Faster
  • Don’t Forget Your 401(k) When You Leave Your Job! Here’s What You Can Do With It
  • Your 4 Step Guide on How to Stop Living Paycheck to Paycheck
  • What Is A Mortgage Escrow Account?
  • This is Why Your House Isn’t Selling – Here’s How to Finally Get Your House Sold
  • 7 Ways to Get Rich Quick
  • What is Renter’s Insurance and Why You Need It
  • What Is a Probate Lawyer and When Would You Use One?

Recent Articles

  • Money Market Account VS Savings Account – What’s the Difference?
  • Five Ways Fantasy Baseball is Like Personal Finance
  • Tools to Help Organize Your Taxes
  • Don't Let Your Goals Fizzle Out! - 5 Reasons Goals Fail, and What You Can Do To Make Yours Succeed
  • What Do You Think of New Year's Resolutions?

Tools to Improve Your Finances

  • Online High Yield Savings
  • All About Online Checking Accounts – Why Pay More Fees Than You Have To
  • Personal Capital Review - A One Stop Financial Center
  • Online Brokerages That Won't Break Your Bank
  • Credit Karma Review - Get Your Credit Score and More
  • CD Rates
  • Savings Rates
  • Mortgage and Refinance Rates
TurboTax Review HR Block Review Shoeboxed Review

Follow Us On Pinterest!

Follow Free From Broke's board Most RePinned and Popular {Free From Broke} on Pinterest.

Footer

More

  • About
  • Archives
  • Contact Us
  • Get Our Newsletter

More Recent Articles

  • Think Long Term When Shopping Black Friday and Cyber Monday
  • 10 Essential Tips For Shopping Black Friday And Cyber Monday That Will Save You Money
  • How to Improve Your Credit Score Fast
  • What is a Refund Anticipation Loan (RAL) and is it Worth It?
  • Paying Taxes with a Credit Card: Pros and Cons

Disclaimer

Free From Broke is for general information or entertainment purposes only and does not constitute professional financial advice. Be smart and do your own research or contact an independent financial professional for advice regarding your specific situation.

In accordance with FTC guidelines, we state that we have a financial relationship with companies mentioned in this website. This may include receiving access to free products and services for product and service reviews and giveaways.

© 2007–2025 Free From Broke A Personal Finance Blog For Regular Folks – All rights reserved.

No content on this site may be reused in any fashion without written permission from FreeFromBroke.com | Privacy Policy | Sitemap

Copyright © 2025 · Metro Pro on Genesis Framework · WordPress · Log in

We are using cookies to give you the best experience on our website.

You can find out more about which cookies we are using or switch them off in settings.

Go to mobile version
Powered by  GDPR Cookie Compliance
Privacy Overview

This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.

Strictly Necessary Cookies

Strictly Necessary Cookie should be enabled at all times so that we can save your preferences for cookie settings.

If you disable this cookie, we will not be able to save your preferences. This means that every time you visit this website you will need to enable or disable cookies again.