How do you calculate how much life insurance you need?

Picking a life insurance number out of thin air is one of the most common mistakes people make. Too little and your family struggles financially after you are gone. Too much and you overpay for coverage you do not need. A proper calculation looks at four things: income replacement, outstanding debts, future expenses, and assets already in place. Work through each step and you will land on a number that actually makes sense.

Start with income replacement

The core purpose of life insurance is replacing the income your family would lose. A widely used rule of thumb is ten to twelve times your annual income. If you earn $70,000 a year, that puts the baseline between $700,000 and $840,000. The right multiplier depends on your age, how many earning years remain, and whether a spouse also earns income. The younger you are and the fewer dual incomes in the household, the higher the multiplier should be.

Add debts and future expenses

Income replacement alone is not enough if your family inherits significant obligations. Add each of the following to your baseline number:

• Mortgage balance: The full remaining balance so your family can stay in the home.
• Car loans and personal debt: Any balance that would become a burden without your income.
• Education costs: Estimate four-year college costs for each child who has not yet finished school.
• End-of-life expenses: Funeral and burial costs typically run $10,000 to $15,000.
• Childcare or household services: If a stay-at-home spouse passes, factor in the cost of replacing their work.

Subtract existing assets

Life insurance fills the gap between what your family needs and what they already have. Subtract liquid assets that would be available to survivors: savings accounts, investment accounts, existing life insurance policies, and any retirement accounts your spouse could access. Do not subtract retirement funds you would need to deplete entirely, since that could undermine your spouse's own retirement security. The result after subtracting available assets is your true coverage gap.

Revisit the number as life changes

Your calculation today will not be accurate in ten years. Marriage, divorce, having children, paying off the mortgage, and significant salary increases all change the math. Review your coverage every three to five years or after any major life event. A policy that was right when you bought it may now be too small or, in some cases, larger than necessary.

What Truscott recommends

Running this calculation on your own is a good start, but the details matter and small errors can leave your family significantly underinsured. A Truscott coverage review walks through your income, debts, future obligations, and existing assets to produce a precise coverage target—then matches it to the right policy type and carrier for your situation. Reach out to get a number you can trust.