Here’s how much life insurance you need at every income level.
- Life insurance needs are based on myriad factors, from the size of your family, to whether or not you own a home or have debt, to how much money you’re earning and saving.
- Since life insurance needs are so specific to an individual or family, a life insurance calculator will typically yield the most accurate estimate.
- Business Insider created three sample scenarios and ran them through SmartAsset’s life insurance calculator to estimate life insurance needs in a high cost-of-living US city, a lower cost-of-living US city, and an average cost-of-living US city.
- All three scenarios are for a hypothetical 35-year-old married homeowner with two kids and a working spouse.
It’s not easy to put a price on your life. There’s a lot to consider to find out how much life insurance you need, including whether or not you have kids, a working spouse, a mortgage or other debt, and savings or investments.
Not everyone needs life insurance. Insurance-comparison website Policygenius boils it down to a simple question to decide whether you need it: Does anyone rely on your income for their financial well-being? That could be children, a spouse, aging parents, or anyone else who could be considered some level of dependent. If someone else relies on your income, then you probably need life insurance.
In most cases, explains Policygenius, a limited-time, or term life insurance policy is a good fit for coverage, because life insurance gets more expensive the longer you wait to purchase it and the longer the term of coverage. Stayat-home parents, retirees, and children generally don’t need life insurance.
Typically, the higher your income and the more expensive the city you live in, the more money your family will need in your absence.
Business Insider created three sample scenarios to estimate life insurance needs for people at different income levels in a comparatively high cost-ofliving city (Brooklyn, New York), lower cost-of-living city (Dallas, Texas), and average cost-of-living city (Denver, Colorado) and ran them through SmartAsset’s life insurance calculator.
Each calculation was based on a handful of assumptions, which you can see in full at the end of this post.* High-level, the hypothetical insurance-holder in this scenario is a 35-year-old with two kids and a working spouse, who owns a median-priced home in their city and has savings and investments.
The charts below show the estimated life insurance policy needed for five different income levels with the above assumptions:
It’s important to note that these life insurance estimates are independent of group life insurance offered through an employer. If you’re signed up for
group life insurance through work, you only need to supplement that amount with an individual policy.
Many companies offer life insurance coverage for employees, but it’s usually not enough to replace income for a family. According to NerdWallet, typical= coverage amounts are $25,000, $50,000, or an employee’s annual salary. The policy is often free and the money is guaranteed, so it’s often worth taking.
Some employers offer supplemental life insurance to make up the difference, but it’s smart to compare rates with other insurers to find the best option.
*The above calculations are made using the following assumptions for a 35- year-old:
- Spouse of the same age, earns $60,000 a year and lives to age 95
- Two kids, birth years 2014 and 2012
- Plans to pay for both kids four-year out-of-state public college tuition
- Owns a median-value home with a mortgage (home value for each city sourced from Zillow)
- Has current savings and investments equal to twice their salary (Fidelityrecommendation for 35-year-old)
- Savings and investments earn conservative 4% annual return
- Beneficiaries receive Social Security
- Family needs 50% of current income for 20 years