How much life insurance do you actually need?

Why “10× income” is a starting point, not an answer

The 10× rule has staying power because it’s easy. Multiply your salary, get a round number, move on. For a 30-year-old earning $80,000, that’s $800,000 of coverage. Not bad as a floor.

The problem is what the rule ignores. It treats a renter with no kids the same as a homeowner with a $400,000 mortgage and two children under five. It assumes your spouse keeps earning at the same rate. It doesn’t account for the fact that a 35-year-old has different obligations than a 55-year-old. And it says nothing about whether your family wants to send the kids to in-state public college or an out-of-state private one — a difference of more than $100,000 per child.

A better way to think about it: insurance replaces what your income was going to do. The right number is whatever it takes to keep your family’s plan intact without you. Sometimes that’s less than 10× your income. Often it’s more.

The four-bucket framework

Every coverage decision comes down to four buckets. Estimate each, add them up, then subtract what you already have (savings, retirement accounts your spouse can access, existing group coverage at work). What’s left is the gap your policy needs to close.

Start with the question: how many years does your family need your income? For most parents with young kids, the honest answer is until the youngest is financially independent — typically 18 to 22 years. Multiply your annual after-tax contribution to the household by that number.

If you make $90,000 and your family lives on roughly $70,000 of that after taxes and your own personal expenses (gas to work, your phone bill, your share of food), you’re replacing $70,000 a year, not $90,000. Across 18 years that’s $1.26 million.

Two adjustments most people miss. First, if your spouse works, only replace the gap their income doesn’t cover. Second, Social Security pays survivor benefits to children under 18 and to a caregiving spouse — often $1,800 to $2,800 per month per child, capped by family maximum. That income offsets some of what your policy needs to provide. It’s real money. Count it.

List every balance you carry: mortgage, car loans, credit cards, personal loans, student loans, HELOCs. The goal isn’t necessarily to pay them all off in one shot — sometimes it makes more financial sense for the surviving spouse to keep a 3% mortgage running. But the option to pay it off should exist. That option requires the cash sitting in the policy.

One detail that surprises people: federal student loans are discharged at death. Private student loans usually aren’t. If you’re carrying $80,000 in private loans and your spouse co-signed, they’re still on the hook. Add it to the bucket.

College is the obvious one and usually the largest. Run the numbers honestly. In-state public university today costs roughly $30,000 per year all-in (tuition, room, board, books). Out-of-state public is closer to $45,000. Private universities run $60,000 to $80,000 per year. Multiply by four years per child, then decide what share you intend to cover. If you have two kids and you’re aiming at public in-state with full ride, that’s about $240,000 in today’s dollars. Inflate by 5% per year for the time horizon.

Don’t stop at college. Aging parents you help support, a special-needs sibling or child who will need lifetime care, weddings, a down payment you promised — these are real obligations that don’t disappear because you did. Special-needs planning specifically often calls for a larger permanent policy and a special-needs trust; talk to an attorney before you assume term coverage is enough.

A traditional funeral and burial runs $8,000 to $15,000 depending on your state. Cremation is closer to $2,000 to $5,000. Add estate settlement costs — probate filings, attorney fees, executor expenses — which typically eat 3% to 7% of an estate’s value. Then there’s the medical bill that often arrives after the death: end-of-life care, ICU stays, and uncovered procedures that hit deductibles you haven’t maxed out yet.

Most families budget $25,000 to $40,000 here. It’s the smallest bucket but the one that creates the most short-term cash crunch, because the bills land before any policy that has to go through claims review.

A worked example: the Hayes family

Marcus and Dani Hayes are both 35. Marcus earns $90,000 as a project manager. Dani earns $55,000 part-time and handles most of the childcare. They have two kids, ages 4 and 6, a $300,000 mortgage with 27 years left, $18,000 on two car loans, and about $40,000 saved between their emergency fund and a taxable brokerage account. Dani’s employer provides $50,000 of group life coverage; Marcus has $90,000 (1× salary) through work.

Here’s how the math works for Marcus.

Common mistakes to avoid

When to revisit your number

Plan to recalculate every two or three years, and any time one of these happens:

• Marriage or remarriage
• A new child or adoption
• Buying or refinancing a home
• A raise of more than 20%
• Divorce or separation
• A career change or business launch
• A new health diagnosis
• An aging parent moving in

If your existing policy is term and you’re still inside the level period, you usually have two options: add a second policy stacked on top (called “laddering”) or replace the original with a larger one. Which is cheaper depends on your age, health, and what carrier you’re with. Run both quotes before deciding.