How Much Life Insurance Do You Actually Need?

Why round numbers usually miss the mark

A lot of people default to a number like $250,000 or $500,000 simply because it sounds like a lot. The right number actually depends on your specific debts, income, and dependents — not a generic round figure.

A simple starting formula

A common approach is adding up your outstanding debts, future obligations, and a multiple of your annual income, then subtracting existing savings or assets.

• Outstanding debt — mortgage, student loans, car loans, credit cards
• Income replacement — often 5 to 10 times your annual income, depending on dependents
• Future costs — childcare, college tuition, or other long-term obligations
• Subtract existing savings, retirement accounts, or other life insurance you have

Why dependents change the math significantly

If you have kids or a partner relying on your income, the calculation shifts toward replacing years of income, not just covering existing debt. The number needed to support a family for 10+ years looks very different from covering a single person's debts.

Don't forget about final expenses

Funeral and end-of-life costs are often higher than people expect, and they're frequently left out of these calculations entirely. Even without other obligations, this is worth factoring in.

When to revisit the number

Your coverage need isn't static. A new mortgage, a new child, or paying off a major debt are all good triggers to recalculate whether your current policy still matches your situation.