Jeffrey Manola is an experienced life insurance agent and the founder of Top Quote Life Insurance. His mission when he created Top Quote Life Insurance was to provide online consumers searching for life insurance with the absolute best quotes for term life insurance, permanent life insurance, no medical exam life insurance, and burial insurance. Not only does he strive to provide you with the ...

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Written by Jeffrey Manola
Founder & Licensed Agent Jeffrey Manola

Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insur...

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Reviewed by Leslie Kasperowicz
Farmers CSR for 4 Years Leslie Kasperowicz

UPDATED: Jun 29, 2022

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One in four consumers in the U.S. isn’t insured. The reason? They don’t have any idea how much life insurance they need and where to get it.

This is the 5th top reason why people don’t buy life insurance in the United States. It goes after the other popular reasons, such as it being expensive and being less prioritized.

You may often ask, “How much life insurance can I get?” If you’re interested in getting a life insurance policy but you can’t find the answer to this question, we’ll go into detail about what sort of services you should look for in a life insurance company.

To give you a quick answer, the life insurance cost you’ll end up spending will depend on how much your family and/or beneficiaries need when you leave them.

Continue reading to learn about the various ways you can calculate how much life insurance to purchase.

Looking to compare life insurance policies? We can help. Enter your ZIP code to get free quotes from multiple insurers.

How much life insurance can I get?

If you’re wondering how much life insurance you need, the answer will vary from person to person. There are a wide variety of life insurance policies on the market, all tailored to specific life styles. Each person has their differences from the income they earn up to the number of beneficiaries they have.

Here’s one general method in finding your target amount. To identify the values you’ll need in the computation, follow these three steps:

Create a Budget

Where does your money go? Calculate how much money your family needs to live. This can include basic expenses, taxes, mortgage payments, and medical bills.

You can also add your funeral expenses and possible estate taxes in the formula.

Plan for the Future

There are financial obligations to consider such as education tuition fees and other future expenses. Add the value you get here to the estimated money your family needs.

Calculate Income

Where do you get your money? How much do you and your spouse earn?

Add here your savings from different resources together with the existing life insurance policies your employer may be providing.

In the end, take the value of what your family needs and the money you have. The difference between the two will give you an idea on how much your life insurance should cost.

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What rule of thumb theories exist for purchasing life insurance?

Finding the difference between your financial obligations and assets is the simplest way to know how much coverage you should get.

If you’re not sure what to list down as your financial obligations and assets, there are other ways you can do to find the right coverage amount.

Here are the rule of thumb theories you can consider following:

Rule of Thumb #1

Multiply income by 10. There’s nothing else to know about this rule as its formula is simple – income times 10.

Multiplying your income by 10 is easy to do. However, it can miss important factors such as your family’s needs, your savings, and other expenditures.

Rule of Thumb #2

Multiply your income by 10 plus $100,000 per child.

Number two is an upgraded version of number one, with your children’s future education added to the formula.

If you have children, you’ll expect to spend on education expenses in the future. That’s why you need to add $100,000 multiplied by the number of children you have.

The total is added to your income multiplied by 10 and you’ll get your estimated life insurance coverage.

It’s another easy way of finding out the coverage you need but again, it doesn’t consider the family’s needs and assets.

Rule of Thumb #3

The DIME formula. In the DIME formula, you’ll be able to look at the other details that will affect the value of your life insurance.

DIME stands for debt, income, mortgage, and education. These are the four factors you’ll use in the formula:

  • Debt: This should include all kinds of debt you have together with mortgage and funeral expenses.
  • Income: Think about the number of years your family would need support. It could be the years before your youngest child finishes high school or when he/she reaches 18. Multiply the number of years to your annual income to know your estimated income replacement cost.
  • Mortgage: You should know how much you should pay for your mortgage. Doing this ensures your family won’t need to worry about looking for a place to stay when you’re gone.
  • Education: Parents need to be sure their children can go to college. Here you can list down the estimated college expenses your kids will need.

Add everything to get your target life insurance coverage.

However, the DIME method misses other details like your current life insurance policy and savings. This can be a problem if you want to see a realistic total coverage cost.

Are there tips for better understanding how much life insurance a person needs?

While calculating your ideal life insurance coverage, you can do the following tips:

  • Treat life insurance as a part of your entire financial plan of attack. By having your overarching financial plan include your life insurance policy, you won’t look at it as an additional expense, but as something that is necessary. It should go together with other future plans such as education costs and income increase. Putting everything on one page makes it easier for you to figure out the needed coverage value.
  • Buy more rather than less. You’ve got all these formulas you can use, but none of them can give you the exact amount you’ll need. Your income and expenses may change in the following years. It’s better to spend more than your computed results to be sure.
  • Talk to your spouse. Finding your ideal coverage isn’t only about answering, “How much life insurance can I get?” You should also talk about it with your spouse to check if the estimates you did make sense.
  • Think about buying multiple insurance policies. Depending on your situation, it might be better to get multiple small policies than getting single yet expensive life insurance policies. These can provide adequate coverage on each insurance need. Layering multiple policies can save you money and prevents you from getting over-insured. However, this won’t work for everyone, so plan accordingly.
  • Choose a longer term. Buying a longer term life insurance gives you more time to increase your assets. It also helps you avoid getting caught short, which may happen if you choose to pay for insurance with a tighter period.

What’s the bottom line?

The question, “How much life insurance can I get?” doesn’t have a single exact answer. It will depend on your assets and expenses, and also on the results from your calculation.

Did you get your ideal life insurance coverage value using the mentioned methods? If you’ve found the right value for you, get quoted now using our online calculator.

Looking to compare life insurance policies? We can help. Enter your ZIP code to get free quotes from multiple insurers.