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How Much Term Life Insurance Do I Need?

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We’re breaking down a few of the ways you can determine your term life insurance need before deciding on a plan.

If you’re considering a term life insurance plan for the very first time, it can be difficult to estimate how much life insurance to purchase. After all, you most likely do not have your life and expenses planned out year by year. However, before you settle on a plan, you do need to determine your term life insurance need. Luckily, there are a few ways you can calculate how much life insurance you’ll need in the future to sustain your loved ones. Let’s discover how you calculate how much life insurance you need to purchase. 

How Can I Manually Calculate My Term Life Insurance Need?

Let’s find out how you can quickly and easily estimate your term life insurance needs

By subtracting your assets from your expenses, you get a good starting point for your term life insurance plan.There are a few ways that you can calculate your term life insurance needs. The first way we’ll be discussing is a manual calculation of your assets vs your financial obligations. To get started, you need to add up your financial obligations — that means any debts like student loans, mortgages, funeral costs, and anything else that may be left to your loved ones after your passing.The next step is to calculate your assets. To calculate your current assets, start by adding your savings, liquid assets, and any other accounts or sources of monetary value. Then for your final step subtract your assets from your obligations and you have your final calculation for your term life insurance total.Obviously, this will not be an exact number, but it can give you a decent estimate on how much life insurance you’ll need.

Multiply Your Yearly Income by 10

Find out a general estimate of your term life insurance needs with this simple calculation 

The sooner you estimate your life insurance need, the better.Another common way to estimate your term life insurance need is by multiplying your yearly income by 10. It is important to note that this method to tally income replacement does not take into account your savings or your family’s future needs. This method, while not comprehensive, is helpful because your salary will need to be replaced after you pass. By making this calculation, you are estimating the minimum amount your spouse or your loved ones will need to live comfortably. Another way you can approach this method is by adding $100,000 after you multiply your income by 10. This will give your family a large buffer for either unexpected expenses or college tuition. By adding $100,000 to your estimate, you can plan to give yourself and your family a bit more peace of mind.

Break Down Your Individual Expenses for A More Detailed Look at Your Term Life Insurance Needs

Now that you’ve gotten a broad estimate, it’s time to take a more in depth look at your term life insurance needs

Determine your life insurance needs using the DIME method.If you’re interested in making some more precise calculations to find out how much term life insurance you need, then it’s time to move to the DIME formula. The DIME formula is an acronym standing for Debt, Income, Mortgage, and Education. These are the four most important things that your insurance plan needs to cover in the event of your passing. Let’s get started:

  1. Debt & Funeral Cost – First, add up your debts (excluding your mortgage) and your expected funeral cost. Remember, funerals can get expensive.
  2. Income – Multiply your income by the number of years your loved ones will need support. For this step, you can repeat the yearly income x 10 formula.
  3. Mortgage –  Now is the time to estimate how much you owe on your mortgage.
  4. Education – Calculate how much you intend to leave for your children’s college education. You should expect about $100,000 per child, however the cost of higher education is always rising.

The last step of this method is to add all of your totals together from the DIME exercise. Then, your overall total will add up to the amount of term life insurance you need.

Always Overestimate Rather than Underestimate Your Future Expenses

Planning for the future sometimes means planning beyond your initial term life insurance need

The cost of living continues to rise. Keep that in mind when purchasing life insurance.One of the most important things to keep in mind when determining how much life insurance you need is inflation rates. Each year, prices rise and you need to be prepared for any and all help your loved ones may need down the line. That’s why it is always better to overestimate rather than underestimate your future expenses. We can’t predict the future, but we can try our best to set aside enough for our loved ones, no matter what the future brings. 


Now that we know a little bit more about how to calculate your term life insurance need,  you can make your own calculation and start searching for the best insurance plan for your family.

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