How Much Life Insurance Do I Need?

Ideally, you want enough life insurance coverage to provide financially for your beneficiaries if something happens to you. This means enough money to cover the loss of your income along with your family’s expenses, debt and long-term goals — such as your kids’ education.

Most insurers suggest at least six to 10 times your annual income, but this may not be the most realistic or accurate way to determine your best amount of coverage.

The ideal amount of life insurance varies from person to person. You should determine the right amount of coverage before buying life insurance.

To determine the right amount of life insurance for you, there are several important factors to consider.

There are several methods for estimating how much life insurance you will need. Two of the most common methods are the “10 Times Rule” and the “DIME Rule.”

The 10 Times Rule has long been a rule of thumb in the insurance industry for estimating how much coverage you need.

It simply involves taking your annual income and multiplying it by 10. Some financial professionals suggest adding an extra $100,000 in coverage for each child you have.

The rule has several shortcomings — for instance, it doesn’t work well for single-parent families.

The DIME Rule gets its name from the four considerations in the acronym for this rule — debt, income, mortgage and education. It covers four of the biggest factors that life insurance typically addresses.

Add up the totals from these four categories for a guideline on the coverage needed — and consider doubling that total in case something happens to both parents.

The average amount of life insurance coverage was $178,150 for policies purchased in 2019, according to the American Council of Life Insurers. This is far less coverage than what financial advisors typically recommend.

The actual amount of life insurance varies greatly from person to person, based on their individual family’s needs and the type and number of policies individuals own.

Only about 52% of American adults have life insurance, according to a 2022 study by LIMRA, a financial services research and education company. But the study also shows more than a quarter of life insurance owners have only group insurance, which is life insurance provided through an employer. This is typically for a smaller amount than through individual policies and ends when you leave your job.

The total market size of the life insurance industry — including annuities — in the United States was $1.2 trillion in 2022, according to research by industry research firm IBISWorld.