How Much Life Insurance Do I Need?

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How life insurance works

Life insurance is a type of supplemental insurance plan that may come in handy if you want to help support loved ones after you pass. Usually, the policyholder pays scheduled premiums in exchange for the life insurance company paying their beneficiary a sum of cash after they pass.¹ With most insurers, you'll determine how much life insurance you need upfront.

What does life insurance cover?

Before determining how much life insurance you need, it's important to understand what life insurance covers. Typically, a life insurance plan covers a death benefit or sum of money given to the beneficiary after the policyholder passes.

The death benefit can be used to help with a host of needs, like everyday utilities and monthly expenses. If you have any dependents, you may be able to use the life insurance payout to help cover their education or childcare.²

Types of life insurance policies you may need

Aflac offers term, whole, and final expense life insurance. We think you'll be able to find something that fits your needs in one of these plans, but there are other options. Deciding which type of life insurance works best for you can directly impact how much life insurance you really need.

Term life insurance

Term life insurance is a temporary policy that can give you coverage for a set time period, such as 10, 20, or 25 years. With this type of plan, you'll want to figure out your future timeline to the best of your ability. It's important to choose the right plan length because there is no payout if the policy expires before your death or you live beyond the policy term.³ Chatting with an agent can help you clarify how much term life insurance you may need.

Whole life insurance

Whole life insurance typically helps provide coverage throughout your entire life. It also contains a cash value portion that lets part of the premium payments grow in a separate tax-deferred account that the policyholder can withdraw or borrow against later in life.⁴ You may want to consider this type of life insurance plan if you need lifelong coverage.

Final expense life insurance

Final expense life insurance is a type of whole life insurance plan that can help cover end-of-life costs. In addition to helping cover standard funeral costs, these plans can also help with medical, accounting, and final bills.⁵

Universal Life Insurance

Universal life insurance may also be worth exploring if you are drawn to growing the cash value in various ways, like using a money market rate or index. Determining if you want cash value is something you should consider when deciding how much life insurance you need.⁶

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What to consider when calculating how much life insurance you need

Consider these factors when figuring out the right amount of life insurance coverage for your needs:⁷

Your income: The death benefit payout from a life insurance policy should ideally be able to help provide financial stability for multiple years if you pass away.

Your debts: If you have any debts, such as a mortgage or student loans, your policy should have enough of a payout so that beneficiaries can pay them off in case of the unexpected.

Your dependents: Consider how many loved ones rely on you financially when deciding how much coverage you need.

Ways to calculate how much life insurance you need

Here are a few tools you can explore to figure out how much life insurance you need:⁷

Calculate your financial obligations: Mapping out any debts or forecasted costs can help you determine how much coverage you need.
Multiply your income by 10: A general rule of thumb to figure out how much life insurance you need is to multiply your gross income by 10.
Multiply your income by 10 and add $100,000 per child: If you have children or dependents, it may be helpful to add at least $100,000 for each one.
Use the DIME method: The DIME method asks you to consider your debts, income, mortgage, and education when choosing a life insurance coverage amount you may need.

Is life insurance worth it?

Life insurance can be a worthwhile investment if you want your loved ones to have added financial security in case you pass away. Getting a policy can help give you peace of mind knowing beneficiaries will be able to cover expenses and pay off debt in your absence.

Additionally, if you get life insurance with cash value, you can save up funds over time that you can access while still alive through policy loans or withdrawals. Once you've built up enough cash value, you can use it to help supplement retirement income, cover large expenses, or even make a down payment on a house. This can make getting life insurance coverage well worth it.

Get the life insurance you need from Aflac

The right amount of life insurance coverage can help provide a financial safety net for your loved ones. If you're wondering how much life insurance you need, we hope this article helped outline the best approach to figuring out your coverage goals. Chatting with an agent can help simplify the process. Get a quote to see how Aflac can fit into your life insurance budget.

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