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Insurance Education

How Much Life Insurance Do I Really Need?

January 25, 2019

OK…so maybe you’ve overcome the weirdness you may have once felt about discussing life insurance. Maybe you’re feeling pretty confident in your understanding of how life insurance works. Maybe after a little research (perhaps via the handy #FunFactFriday hashtag we love to use over on the OLC Instagram), you’ve realized that helping to better protect your family’s financial future might not be as tough on your wallet as you thought it would be . (44% of Millennials overestimate life insurance cost by FIVE TIMES the actual amount...what?!) Maybe you’ve even gotten a quote. (Oh, you haven’t? Don’t worry, it only takes a minute to grab one here!)

Even after making it this far, though, some enthusiastic life insurance shoppers may hit a brake-screeching roadblock when they ask themselves:


“How much life insurance do I need, anyway?”

This is a question with many answers. While we suggest talking with a financial advisor for more specific guidance, here are a few approaches to estimating the amount of life insurance you may want to consider.


The D.I.M.E. Method

If you were to ask your parents about buying life insurance, they might recall “10 years’ worth of income” as the rule of thumb for coverage. While that’s not a bad place to start, it may be oversimplified, especially in the current economic culture (which is a nice way of saying “more credit card debt,” “bigger student loans,” and “inflation”). As an alternative, take a look at the more comprehensive D.I.M.E. formula:

Debt and final expenses: Add up all your debts (not counting your mortgage) plus an estimate of your funeral expenses (on average, $7,000-$10,000).

Income: Rather than just assuming 10 years is the magic number, consider taking a more personalized approach to deciding how much life insurance to buy. For example, if you have young children, the number could be higher than if your kids are older. If you have significant savings, the number may be lower than if you don’t. Estimate for how many years your family may need support, then multiply your annual income by that number.

Mortgage: Confirm the sum it would take to pay off your mortgage in full.

Education: Estimate the cost of sending your kids to college. Current average cost of tuition, fees, room, and board for four years is: $40,920 (Public, In-state); $105,160 (Public, Out-of-state); $143,320 (Private, Nonprofit). If your children currently attend/will attend private primary or secondary school, add those tuition expenses as well.

Simple math

If clever acronyms aren’t really your thing, here’s another simple formula:

Monthly living expenses ($/month) x 12 (months) = Annual expenses


Annual expenses ($) x Years of coverage needed (determined by you) + Large/one-time expenses (estimated $) + Outstanding debt (total $) = Total sum needed


Total sum needed ($) - Available assets ($) = Estimated amount of life insurance to consider purchasing


Large or one-time expenses could be planned (like college tuition or a new car), but it’s a good idea to include a safeguard against unexpected expenses as well (like medical bills or home repairs). Also keep in mind that this is just a ballpark starting point that doesn’t account for the impact of inflation, etc. Talking to a personal financial advisor could help you arrive at a more accurate number.


Show your work…or don’t


Remember all those warnings we got when we were growing up about how we wouldn’t always have a calculator lying around when we needed to do math? Clearly that didn’t exactly work out the way our concerned elders expected. And it’s not just regular calculators that we have at our fingertips basically all of the time…we also have access to online life insurance calculators like this one! So if mental arithmetic still makes your palms sweaty, don’t worry…technology has you covered.


However, if you want to really make your middle school math teacher proud, go ahead and sharpen a #2 pencil, then download this handy "Life Insurance Needs" worksheet from Our Life Covered℠!


Cover the moment, plan for the future


If you’re feeling discouraged because you aren’t sure the amount of life insurance you need is in your current budget, keep in mind that some life insurance is usually better than no life insurance!


So consider getting what you can afford right now. Maybe it’s a 10-year term life policy that could help cover final expenses and potentially provide your family with at least a small financial buffer if something were to happen to you. If your income increases or your other financial obligations change, though, think about adding more coverage!


Review + Revise (as needed)


In addition to adjusting your life insurance to reflect your current financial status, you should also consider reviewing your coverage in connection with major life events, including (but not limited to):


• Marriage

• Divorce

• Buying a home

• Having a child

• A new job

• Paying off a mortgage

• Retirement


What are you waiting for?!


We hope you feel a little more equipped to decide how much life insurance coverage you may need to help better provide a brighter financial future for the people you love! When you’re ready to talk things over with one of our trusted agents, give us a call at 888-828-9760 or use our super convenient direct chat feature!


Want to learn more about life insurance and talk more about how to work toward a longer, healthier, more financially secure life? Follow us on Facebook, Twitter, Instagram, Pinterest, and LinkedIn, or send us a message directly to join the conversation.

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Camilla Mecher


Camilla Mecher

Camilla Mecher is a content creator for Our Life Covered℠. She lives in downtown Cincinnati, OH with her cool husband, Dan, cute son, Jude, and bad cat, Margot, and loves being a mom in the city. When Cam isn’t writing about life and life insurance, she enjoys yoga, cooking, family movie nights (with popcorn or it doesn’t count), and long walks at Target.


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