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It's hard to say how muchlife insuranceyou'll need to shop around down to the penny, but you can get a good estimate with our life insurance calculator below.
In general, you should add up your long-term financial obligations, such as your mortgage or college tuition, and then subtract your assets. The rest is a gap that life insurance will have to fill.
Life insurance calculator
This life insurance calculator uses your existing assets and debts to calculate how much life insurance you need. If you need help calculating your assets and liabilities, there are additional calculators to help you calculate these values.
" MORE: Compare life insurance quotes
Term vs life insurance calculator
Term life insurancea certain period of time, for example 10, 20 or 30 years. So think carefully when calculating your coveragehow long you want your term policy to last. For example if necessarylife insurance to cover your incomeuntil your kids go to college, you may need a 20-year policy. To hedge your mortgage, you may need a 30-year policy.
Whole life insuranceit can last a lifetime, so you'll want to factor in final costs, such as funeral expenses. Your insurance needs may change throughout your life, so be mindful of future plans such as buying a home or starting a family.
Use the calculator below to determine which type of coverage is best for you.
" MORE: Permanent Vs Life Insurance: Differences, Advantages and Disadvantages
More Life Insurance Calculators: Debt and Income Swap
Use the life insurance calculators below to figure out how much coverage you need to replace your current paycheck and any debts you may have.
How to manually calculate how much life insurance you need
Follow this general philosophy to find your target amount of coverage: financial liabilities minus cash.
Step 1:Add the following things together to calculate your financial obligations.
Your annual salary multiplied by the number of years you want to replace that income.
Your mortgage balance.
Any other debts.
All future needs such as school fees and funeral expenses.
Costs to replace services provided by the stay-at-home parent, such as childcare, if applicable.
Step 2:Subtract liquid assets, such as savings, as well as existing college funds and current life insurance policies, from that total. The number you're left with is the amount of life insurance you need.
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4 ways to estimate how much life insurance you need
If you want to quickly determine your existing life insurance needs, an appraisal can be an easy way to get a value. These methods are better than random guesswork, but they often don't explain important parts of your financial life.
Use the life insurance calculators above to get a more accurate idea of how much coverage you need, then compare that value to these estimates.
1. Multiply your arrival by 10
The "10 times your income" guideline is often shared online, but it doesn't detail your family's needs, nor does it take into account your savings or existing life insurance policies. And it doesn't provide a coverage amount for stay-at-home parents, who should have coverage even if they don't earn any income.
Ofthe value of the work of the stay-at-home parentmust be replaced when he or she dies. In any case, the left-behind parent would have to pay someone for services, such as childcare, that the stay-at-home parent provided free of charge.
2. Buy 10x your income, plus $100,000 per child for college expenses
This formula adds an extra layer to the "10 times income" rule by including extra coverage for your child's education. College and other education costs are an important part of your life insurance calculation if you have children. However, this method still doesn't take into account all of your family's needs, assets, or life insurance policies that are already in place.
3. Use the DIME formula
This formula encourages you to take a closer look at your finances than the other two. DIME stands for Debt, Income, Mortgage, and Education, which are the four areas to consider when calculating your life insurance needs.
Debts and final costs:Add up your debts, except for the mortgage, plus an estimate of your funeral costs.
Income:Determine how many years your family will need support and multiply your annual income by that number.
Mortgage:Calculate how much you need to pay off your mortgage.
Education:Estimate the cost of sending your children to school and college.
Adding up all of these obligations will give you a much more complete picture of your needs. While this formula is more comprehensive, it doesn't take into account the life insurance policies and savings you already have. Unpaid contributions from the stay-at-home parent are also not taken into account.
4. Replace your income and add a cushion
With this method, you buy enough coverage for your users to replace your income without spending the payout yourself. Instead, they can save or invest a lump sum and use the resulting income to pay for expenses.
To calculate the amount, divide your annual income by a conservative rate of return, such as 4% or 5%. Let's say your sales are $50,000 and you estimate a 5% return. The math works like this: $50,000 divided by 5% equals $1 million. So if you buy onea million dollar life insurance policyand your users deposit the payout into a bank account and earn 5% annual interest, they can expect to generate $50,000 per year to replace your income.
When your dependents no longer need the income to cover their day-to-day living expenses, the $1 million can go toward other goals, such as college tuition, buying a home, or retirement income.
To use this method for a stay-at-home parent, first add up how much it would cost each year to pay someone else to handle that parent's duties. Then plug that number into the formula as if it were the stay-at-home parent's annual income.
" MORE: Who needs life insurance?
The best insurance of the year
Do you want to make smarter insurance decisions in the coming year? Check out our list of Best-Of Awards 2023.
Tips for calculating how much life insurance you need
Keep these tips in mind when calculating your coverage needs:
Consider life insurance as part of your overall financial plan.That plan must take into account future expenses, such as study costs and future growth of your income or assets.
Don't skimp.Your income will likely increase over the years, as will your expenses. While you can't predict exactly how much of this will increase, a pillow will help ensure that your partner and children can maintain their lifestyle.
Talk to your family about numbers.How much money does your husband think the family needs to survive without you? Are your reviews right for them? For example, should your family match your entire income or just a portion?
Consider getting several smaller life insurance policies.You canbuy more than one life insurance policyto change your coverage as your needs increase and decrease. For example, you can buy a 30-year life insurance policy to cover your spouse until you retire and a 20-year policy to cover your children until they graduate.Compare life insurance quotesto estimate your costs.
FAQs
How much life insurance do I need? - Nerd Wallet? ›
Most insurance companies say a reasonable amount for life insurance is at least 10 times the amount of annual salary. If you multiply an annual salary of $50,000 by 10, for instance, you'd opt for $500,000 in coverage. Some recommend adding an additional $100,000 in coverage per child above the 10x amount.
What is the recommended amount of life insurance to have? ›Most insurance companies say a reasonable amount for life insurance is at least 10 times the amount of annual salary. If you multiply an annual salary of $50,000 by 10, for instance, you'd opt for $500,000 in coverage. Some recommend adding an additional $100,000 in coverage per child above the 10x amount.
Is $100 000 life insurance enough? ›A $100,000 term life insurance policy is sufficient if you already have enough savings, have few financial obligations or owe little debt. It is also sufficient if you're only looking for your insurance to cover funeral costs or other specific expenses.
Is $25,000 enough life insurance? ›A $25,000 life insurance policy is not that much coverage, but it may be enough to cover funeral costs, credit card bills, or other outstanding debts. Plus, a $25K policy will not cost much, and you most likely can get it without taking a medical exam.
What is the 10x rule for life insurance? ›The 10x rule simply means you take your annual salary and multiply it by 10 to determine how much life insurance you need. So, if you make $50,000, you would use $500,000 as your base life insurance amount.
Is 50k a lot for life insurance? ›That's a question many people are asking themselves these days. Sure, a $50,000 policy is not that much coverage, but it may be enough to cover some immediate expenses, funeral costs, credit card bills, or other outstanding debts.
How much does $500,000 of life insurance cost? ›The cost of a $500,000 term life insurance policy depends on several factors, such as your age, health profile and policy details. On average, a 40-year-old with excellent health buying a $500,000 life insurance policy will pay $18.44 a month for a 10-year term and $24.82 a month for a 20-year term.
Can you be a millionaire in life insurance? ›Is It Possible To Become A Millionaire Selling Insurance? A big yes. But like any other job, it takes time to be good at what you do and attain such income levels. Top agents earn anywhere between $100,000 to one million dollars.
Is life insurance worth it if you're rich? ›Life insurance is a popular way for the wealthy to maximize their after-tax estate and have more money to pass on to heirs. A life insurance policy can be used as an investment tool or simply provide added financial reassurance.
How much cash is a $100 000 life insurance policy worth? ›The cash value of your settlement will depend on all the other factors mentioned above. A typical life settlement is worth around 20% of your policy value, but can range from 10-25%. So for a 100,000 dollar policy, you would be looking at anywhere from 10,000 to 25,000 dollars.
Is a million dollar life insurance a lot? ›
One million dollars may seem like a lot of life insurance coverage. But it's actually a fairly typical number. Think about all your debts, living expenses, and what you want your family to have in the future. If something happens to you, they'll need to replace several years of income you would have otherwise provided.
What is the average person's life insurance? ›Life insurance costs an average of $13 a month ($159 a year) for a 20-year, $250,000 term life insurance policy for a man age 30 and $12 a month ($142 a year) for a woman age 30, based on Forbes Advisor's analysis.
What is the 100 to 1 rule life insurance? ›100-times rule – Under this rule, life insurance benefits are incidental if the insurance benefit is no more than 100 times the anticipated monthly annuity benefit.
Can I sell my $50000 life insurance policy? ›Did you know you can sell all or a portion of a life insurance policy, even term insurance? Selling an unwanted life insurance policy is no different than selling your car, home, or any other valuable asset that will create immediate cash.
What is the 7 pay rule for life insurance? ›7-Pay Life Insurance is a type of Limited Pay Life Insurance (typically Whole Life Insurance) that requires payments over 7 annual installments. Seven-Pay Life Insurance can be used as an additional source of income for the family or to help cover monthly expenses in the event of your death.
What is the 5 year rule for life insurance? ›you have been insured for the 5 years of service immediately before the date your annuity starts, or for the full period(s) of service during which you were eligible to be insured if less than 5 years; and. you have not converted to an individual policy.
How much is $500,000 life insurance a month? ›The cost of a $500,000 20-year term life insurance policy for someone in good health is about $20 to $30 per month. Of course, the price will vary depending on your age, health, and other factors.
Which is better whole life or term life insurance? ›If you only need life insurance for a relatively short period of time (such as only when you have minor children to raise), term life may be better, as the premiums are more affordable. If you need permanent coverage that lasts your entire life, whole life is likely preferred.
What is the cash value of a $10000 life insurance policy? ›The $10,000 refers to the face value of the policy, otherwise known as the death benefit, and does not represent the cash value of life insurance policy. A $10,000 term life insurance policy has no cash value.
How much a month is a 1 million dollar life insurance policy? ›How Much Is a $1 Million Life Insurance Policy? The cost of a $1 million life insurance policy for a 10-year term is $32.05 per month on average. If you prefer a 20-year plan, you'll pay an average monthly premium of $46.65.
How much is $100000 in life insurance a month? ›
| Age | Average Monthly Rates, $100,000 Term Policy | Average Monthly Rates, $100,000 Whole Policy |
|---|---|---|
| 25 | $10.53 | $89.31 |
| 30 | $10.60 | $102.53 |
| 35 | $10.60 | $120.59 |
| 40 | $11.89 | $143.03 |
5 Million Life Insurance Policy Cost
Term life insurance policy is the most popular. This type of life insurance makes it much more affordable to get high levels of death benefits. The average 5 million term life insurance cost could be $190 per month or $2,280 per year.
High-earners and wealthy people can use life insurance to pay estate taxes on a large inheritance. Cash value life insurance offers an alternative tax-deferred investment account if you've maxed out traditional accounts. Life insurance trusts can be used alongside permanent life insurance to maximize your assets.
Why do rich people get whole life insurance? ›For many rich people, it makes sense to purchase whole life insurance, because this kind of policy can provide a death benefit to loved ones that is generally tax free. And this money can be used to pay estate or inheritance taxes, so that other estate assets do not have to be liquidated to cover this cost.
Can I use life insurance while alive? ›Permanent life insurance policies will allow you to access the cash portion of your account while you're alive. Term life insurance, meanwhile, does not have a cash element for policyholders to access. So, if you're planning on using your life insurance as a backup cash resource you'll want to avoid term policies.
Is it smart to take money from life insurance? ›Interest rates are typically lower than on other types of loans, and the interest payment adds to the cash value. Though insurers may make it easy to get at cash value, experts warn it's unwise to plunder a life insurance policy for frivolous expenses.
How did the Rockefellers use life insurance? ›For example, the Rockefellers used a series of irrevocable trusts that helped pass down wealth to future generations. These Trusts both fund and remain funded through premium life insurance policies, and include strict stipulations that protect the family from the risk of irresponsible behavior.
Is it bad to have too much life insurance? ›The bottom line. Having too much life insurance means paying for coverage you don't need, which negates the benefits of having life insurance. It might make sense to lower your coverage amount or cancel your policy.
How long does it take for whole life insurance to build cash value? ›How fast does cash value build in life insurance? Most permanent life insurance policies begin to accrue cash value in 2 to 5 years. However, it can take decades to see significant cash value accumulation.
Can you lose cash value life insurance? ›With universal life insurance, the cash value account can lose money, but your death benefit will never be less than the amount you've paid. This type of policy can still be a bad deal if the cash value account loses money and you end up paying more premiums than you would with a term life insurance policy.
What kind of life insurance builds cash value? ›
Universal life insurance is also referred to as "flexible premium adjustable life insurance." It features a savings element (cash value) that grows on a tax-deferred basis. The insurer invests a portion of your premiums.
Can you live your whole life with $3 million dollars? ›If you retire at age 65 and expect to live to the average life expectancy of 79 years, your three million would need to last for about 14 years. However, if you retire at 55 and expect to live to the average life expectancy, your nest egg would need to last for about 24 years.
What happens when you outlive your term life insurance? ›Your coverage ends if you outlive your term life policy. Before it expires, you can choose to convert your policy to permanent insurance, buy a new policy, or go without coverage.
Can you live off a million dollars for life? ›A recent analysis determined that a $1 million retirement nest egg may only last about 20 years depending on what state you live in. Based on this, if you retire at age 65 and live until you turn 84, $1 million will probably be enough retirement savings for you.
At what age should I get life insurance? ›Generally, the younger and healthier you are when buying life insurance, the more money you'll save. As we age, we're at increased risk of developing health conditions, which can result in higher mortality rates and higher life insurance rates. You'll typically pay less for life insurance at age 25 than at age 40.
Do you pay taxes on life insurance? ›Life insurance payouts generally aren't subject to income taxes or estate taxes.
How much life insurance should a 50 year old have? ›Based on the value of your future earnings, a simple way to estimate this is to get 30X your income between the ages of 18 and 40; 20X income for age 41-50; 15X income for age 51-60; and 10X income for age 61-65.
Do I need life insurance if I have a 401k? ›A 401(k) will help provide for your family while you're alive, and life insurance will help provide for your family after death. Both options will help provide you with the financial peace of mind that your family will be taken care of after you're gone.
Can I transfer my 401k to a life insurance policy? ›401(k) rollover to a life insurance policy
Technically, you can't roll over your 401(k) account into an insurance policy; however, if you have a life insurance needs, you can withdraw funds from the account and redirect them to pay for a life insurance policy.
Most whole life policies endow at age 100. When a policyholder outlives the policy, the insurance company may pay the full cash value to the policyholder (which in this case equals the coverage amount) and close the policy. Others grant an extension to the policyholder who continues paying premiums until they pass.
Can you make 6 figures selling life insurance? ›
Like any profession, it takes time to gain experience and build up your income. With that said, the top life insurance agents earn over $100,000 per year. Many make a lot more than that! You can expect to earn $2,000-5,000 per month starting out.
Do people who sell life insurance make a lot of money? ›The career of a life insurance agent is lucrative but involves constant hustling, networking, and many instances of rejection before a sale is ever made. Life insurance agents might be given a small salary to get started but are otherwise primarily dependent on commissions to make a living.
Who buys life insurance? ›People from all walks of life, income levels, single and married, buy life insurance. It is such an essential part of financial planning that Congress has accorded life insurance a special tax status.
Should a 23 year old get life insurance? ›You should buy life insurance if you're a healthy young adult who wants to lock in a lower insurance premium with a generous death benefit. Companies often offer cheaper life insurance premiums to young individuals who are in good health and have no preexisting conditions.
How do I know how much life insurance I need? ›Most insurance companies say a reasonable amount for life insurance is at least 10 times the amount of annual salary. If you multiply an annual salary of $50,000 by 10, for instance, you'd opt for $500,000 in coverage. Some recommend adding an additional $100,000 in coverage per child above the 10x amount.
What is a 20-year pay whole life policy? ›20 Pay Life Insurance is a type of Limited Pay Life Insurance (typically Whole Life Insurance) that requires payments over 20 annual installments. 20 Pay Life Insurance can be used as an additional source of income for the family or to help cover monthly expenses in the event of your death.
What happens at the end of a 20 year whole life policy? ›What happens after 20 years? At the end of the 20-year life insurance term, the period for fixed premiums expires. If you decide not to renew the policy—or renewal is not available for the policy—no death benefit will be paid to your beneficiaries.
What happens after 10 years of paying life insurance? ›What happens after 10 years? At the end of the 10-year life insurance term, the period for fixed premiums expires. Assuming you've outlived the policy, no death benefit will be paid to your beneficiaries. And you won't be refunded any of the premiums paid.
What happens when 20 year term life insurance expires? ›Unlike permanent life insurance, term life insurance stays in effect for only a certain period of time—such as 10, 20, or 30 years. If you die during that period, your beneficiary will receive a payout from the insurance company. If you die after the policy has expired, there will be no payout.
How much life insurance is average? ›The average cost of life insurance is around $30 a month or $360 per year in 2023.
How much is a $10,000 life insurance policy worth? ›
The $10,000 refers to the face value of the policy, otherwise known as the death benefit, and does not represent the cash value of life insurance policy. A $10,000 term life insurance policy has no cash value.
Do life insurance premiums increase with age? ›Life insurance rates usually increase as you get older because advanced age typically corresponds to health complications or just a shorter lifespan. This means insurance companies can expect a claim payout will come sooner for an older person and will often charge a higher premium to offset that risk.
How much is a million dollar life insurance policy per month? ›How Much Is a $1 Million Life Insurance Policy? The cost of a $1 million life insurance policy for a 10-year term is $32.05 per month on average. If you prefer a 20-year plan, you'll pay an average monthly premium of $46.65.