How much life insurance do you actually need?
The short answer
Coverage sizing is arithmetic, not intuition. Add the debts that would survive you, add the income the household would lose, then subtract what savings and existing cover already handle. The remainder is the gap a policy has to fill.
What makes the arithmetic worth doing is how far the answer can land from the guess. Sizing and buying are separate decisions: the amount is set by the household's numbers, and only then does price enter the conversation.
Step 1 — Cover the debts that survive you
A mortgage, a car loan and student debt do not disappear because the borrower died. List every balance that a surviving household would still owe, and add them. Unsecured debts such as credit cards usually belong here too, because they are claims against the estate.
Step 2 — Replace the income the household loses
Multiply the annual income that would stop by the number of years the household would need it. Ten years is a common planning horizon. The right figure for a particular household depends on the youngest dependent and on when the household would otherwise be self-supporting.
Step 3 — Subtract what already exists
Employer cover, existing policies and liquid savings come off the total. Ignoring them is the most common way households over-insure, and it is the easiest part of the calculation to get right.
| Component | How to work it out |
|---|---|
| Surviving debts | Sum of every balance the household would still owe |
| Income replacement | Annual income lost × years the household needs it |
| Final expenses | Burial and outstanding medical costs, a fixed allowance |
| Less existing cover | Employer group cover plus any policy already held |
| Less liquid savings | What the household could reach within weeks |
| Gap | Debts + income + expenses − cover − savings |
Childcare. For households with young children it is frequently the largest single component, and it is the one most often left out, because it is not a debt and does not appear on a statement.
Covers a stay-at-home parent too
Replacing the unpaid work a stay-at-home parent does has a real cost: childcare, transport and household management. A household that leaves this out is not accounting for the work that would need to be bought.
Why the number changes over time
A new child, a refinance, a career change or a move all move the figure. The arithmetic is not meant to be done once. Re-doing it every few years is cheaper than carrying cover sized for a household that no longer exists.
1. National Association of Insurance Commissioners (NAIC), consumer guidance on how much life insurance a household may need. National Association of Insurance Commissioners — reviewed 31 October 2026.
2. 2026 Insurance Barometer Study, LIMRA and Life Happens. National survey of 5,237 adult financial decision-makers, fielded January 2026. Cited for the finding that a large share of consumers overestimate the cost of coverage and remain unsure how much to buy.
No price figures are published on this page. Sizing is presented as a method, so the page stays accurate as market prices move.