How Much Life Insurance Do I Need?

There are many ways to calculate life insurance needs including the use of the simple acronym, LIFE.

Using the LIFE Approach

Once you’ve decided you need or want life insurance, the next question is: How much? One way to calculate this is to determine what you would want to be funded and accomplished after your death. Post-death financial needs often fit nicely into four broad categories:

L – LIABILITIES

Debts to be paid off so survivors are not left with the burden of paying them.

I – INCOME

Any income lost as a result of death but still needed by survivors.

F – FINAL EXPENSES

Medical bills, funeral costs, and other final expenses to be paid.

E – EDUCATION AND OTHER GOALS

Funds for future goals of survivors like further education for children.

With these ideas in mind, you can calculate how much life insurance you may need. Take these steps:

• Determine the dollar amount needed for each of these categories
• Add them together to get the total need
• Subtract from your total need the combined value of any existing assets and funding available from other sources (e.g., savings balances, retirement plans, survivor pensions, Social Security benefits, or existing life insurance)

If this calculation results in a positive number, meaning there is currently more need than available resources, that’s the amount of additional insurance you need to cover your needs or desires after death.

Using a Life Insurance Needs Calculator

Another, perhaps more formal, approach to determing life insurance needs is to use a life insurance needs calculator like this one: