This is the question I get more than any other: "Trevor, how much life insurance do I actually need?"
The honest answer is: it depends on your situation. But I can give you a simple framework to figure it out without overthinking it.
The Quick Rule of Thumb
A common starting point is 10-12 times your annual income. So if you make $50,000 a year, you'd want roughly $500,000-$600,000 in coverage. If you make $100,000, you'd want $1,000,000-$1,200,000.
This rule works as a ballpark, but it doesn't account for everything. Let me show you a more accurate way to think about it.
The Needs-Based Approach
Add up these four categories:
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Income replacement. How many years of income does your family need to replace? If your kids are young, that might be 15-20 years. Multiply your annual income by that number.
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Debts. Add up your mortgage balance, car loans, student loans, credit cards, and any other debts. Your family shouldn't inherit your debt burden.
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Future expenses. Think about college tuition for your kids, childcare costs if your spouse works, and any other major expenses on the horizon.
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Final expenses. Funeral costs, medical bills, legal fees. Budget $15,000-$25,000 for this.
Now subtract any existing savings, investments, or life insurance you already have. The remaining number is roughly how much coverage you need.
A Quick Example
Let's say you make $70,000/year and have two kids (ages 5 and 8):
- Income replacement (15 years): $1,050,000
- Mortgage balance: $250,000
- Car loan: $20,000
- College fund (2 kids): $200,000
- Final expenses: $20,000
- Total need: $1,540,000
- Minus existing savings/coverage: -$100,000
- Coverage needed: roughly $1,400,000
A $1,500,000 term life policy for a healthy 35-year-old might cost $50-70/month. That's real protection for less than a couple dollars a day.
Common Mistakes People Make
Buying too little. A $100,000 policy sounds like a lot of money until you realize it might only cover 1-2 years of expenses. Think bigger.
Only insuring one spouse. If one parent stays home with the kids, the cost of replacing that childcare, cooking, cleaning, and household management is real. Both spouses should have coverage.
Forgetting about inflation. What's enough today might not be enough in 15 years. Build in a buffer.
Waiting too long. Every year you wait, your premiums go up. The best time to buy is when you're young and healthy.
Let Me Run the Numbers for You
Instead of guessing, let me do a quick needs analysis based on your actual situation. It takes about 10 minutes and you'll walk away knowing exactly how much coverage makes sense and what it'll cost.