How Much Life Insurance Do You Need?
- Daniel Kurt
- Oct 28, 2025
- 5 min read
Updated: 1 day ago
Main takeaways
Don’t just follow a rule of thumb—calculate life insurance coverage based on your family’s actual expenses and income gaps.
Employer-provided group life insurance is often too small and doesn’t usually stay with you when you change jobs.
Stay-at-home parents also need coverage, since their household contributions would be expensive to replace.
If you’re about to become a parent for the first time—or otherwise find yourself financially supporting a family member—it’s usually a good idea to start shopping for life insurance that can protect your loved ones when you’re gone.
It’s not just a matter of whether you buy life insurance, however, but figuring out exactly what they’ll need should you pass away. The goal is to find the sweet spot: coverage that’s affordable, but also allows your family to move on without financial stress.
Factors that should impact your coverage
Financial professionals love having rules of thumb that help simplify decision-making for clients, and life insurance is no different. That’s why you’ll sometimes hear that new parents, in particular, should secure a death benefit that’s at least ten times their annual salary.
While that guideline may work much of the time, every family has unique needs. The best way to size your coverage properly is to take a thorough look at your spouse’s (or child guardian’s) expenses year by year. Accounting for each expense category on a simple spreadsheet can help ensure that you cover your bases. Your tally should include:
Housing and utility costs
Grocery bills and dining out
Transportation (e.g. car payments, gas, insurance)
Daycare or other child care costs
Vacations and other activities
College tuition
In a separate column, estimate your spouse’s income potential should you pass away. Ideally, your policy’s death benefit will cover any gaps in the family’s budget.
New parents will often look for coverage that will keep the family afloat until the child reaches adulthood and (hopefully) becomes financially independent. But if you have a stay-home spouse who isn’t keen on returning to work years down the line — or has limited earning potential — you might want a benefit that will provide sufficient income even when your son or daughter is on their own.
Group life insurance may not be enough
Many employers offer life insurance as part of their benefits package. While that coverage can certainly help your family when you die, you may want an individual policy that supplements your group insurance.
Why? For one, your employer’s benefit doesn’t provide adequate coverage for most working adults. A typical workplace policy provides a death benefit equal to your annual salary, or perhaps two times your salary.
Secondly, that group coverage doesn’t usually go with you when you leave the company for any reason. You’ll likely get much better rates when you apply for an individual policy when you’re young and healthy, rather than waiting until you lose your coverage.
In rare cases, ex-employees can convert, or “port,” their coverage into a separate term or whole life policy where they pay premiums directly to the insurer. But you typically have to cover the full cost of your insurance that way, and you may find that searching for polices on the individual market leads to better rates anyway.
Should you get term or permanent life insurance?
Any time you’re planning to buy life insurance, a big decision looms: Do you get a more straightforward term policy or a permanent coverage like whole life?Term life insurance is sometimes called “pure” insurance because you’re buying it solely for the death benefit. Your coverage is only good for a certain length of time — with terms of 10, 20 or 30 years being quite common. However, a policy lasting 20 years, roughly when your first child reaches adulthood, provides adequate coverage for many families. If you have additional children down the road, you can seek out an additional term policy to provide some coverage when the original one lapses.
In addition to providing a payout to your beneficiaries, permanent life insurance policies offer the ability to build cash value that grows over time. It’s like adding an investment account — albeit one with relatively modest returns — on top of your death benefit. And unlike term products, it also gives you guaranteed cover for as long as you pay the required premiums.
But here’s the thing: Term policies are much more affordable than whole life or variable life insurance policies with the same face value. Typically, you’ll pay at least ten times more for permanent coverage, putting it out of reach for many families. If you fall behind on permanent life insurance payments during the first few years of the policy, you could be hit with significant surrender charges as well. It’s also worth noting that your family won’t receive the cash value of your policy when you pass away — only the death benefit.
That’s why a lot of families choose to go with term insurance and use the savings to help boost their contributions to retirement or other investment accounts.
WORTH NOTING
Depending on the exact policy, term life insurance premiums are generally 5x to 15x lower than permanent life insurance with the same death benefit.
Stay-home parents may need coverage, too
Just because stay-home parents don’t bring home a paycheck doesn’t mean that they don’t need life insurance as well. After all, they’re providing child care and housekeeping responsibilities that their working spouse may have to pay for when they’re gone.
A surviving spouse also has to think about funeral expenses if their stay-home wife or husband should pass on, which will typically cost several thousand dollars. They may not need as much coverage as the breadwinning spouse does, but having a payout that can cover those outlays can be critical.
Another option to insure your spouse: Attaching a spousal income rider to your own policy. These add-ons usually offer a smaller amount of coverage, but cost less than taking out a separate policy on their life. If you just need a little extra cash to hire some additional help around the house, that may be all your family needs.
The upshot
Putting an exact dollar amount on how much life insurance your family would need isn’t an exact science, to be sure. However, you may not want to follow a rule of thumb that may not fit your family’s needs. The more detailed you are in projecting their financial needs and other income sources, the more you’ll be able to home in on the right coverage.
