How Much Life Insurance Do You Actually Need?

Life insurance has one honest job: if you die while people depend on your income, the death benefit replaces what you would have provided. Sizing it is arithmetic, not folklore, the popular "10 times income" shortcut is sometimes close and often wildly off in either direction, and the arithmetic takes fifteen minutes. Here is the needs-based method, plus the structural choices (term versus permanent, laddering, ownership) that determine whether you are protected efficiently or expensively.

The Needs-based Calculation

Add four numbers. Income replacement: the annual amount your household would need from the portfolio, times the years until dependents are self-sufficient (or, more precisely, the lump sum that funds it, annual need divided by a conservative 3-4% withdrawal rate). Debt retirement: mortgage and any loans you would want extinguished. Future goals: college funding per child, care obligations to parents. Final costs and a transition buffer: a year of expenses for the family to grieve without financial decisions. Subtract existing assets that would be available and current coverage. The result for a typical high-earning parent with young kids routinely lands at $1.5-3 million, far above both employer coverage and folklore numbers.

Term Is the Workhorse

Term insurance covers a defined period, 20 or 30 years, for premiums a healthy applicant will find startlingly low relative to the benefit; it wins because protection needs are themselves term-shaped: they peak with young children and a fresh mortgage, then decline as assets grow and dependents launch. A useful refinement is laddering: stack policies of different lengths (say $1.5M for 20 years plus $1M for 10) so coverage steps down as the need does, trimming premium. Buy through an independent broker quoting many carriers, and prefer guaranteed-level premiums for the full term. Permanent insurance (whole, universal) has legitimate uses, lifelong needs like estate liquidity or a dependent with disabilities, but as income protection for most families it buys less coverage per dollar precisely when coverage matters most.

The Gaps People Miss

Employer group life, typically one to two times salary, is a supplement that vanishes at job change, right when health may have made new coverage expensive; own personal term while young and healthy. The non-earning or lower-earning spouse needs coverage too: replacing childcare, logistics, and household labor costs real money that the survivor's income must suddenly buy. And beneficiary hygiene: primary and contingent named correctly on every policy, never your minor children directly (a guardianship mess), usually your spouse or trust, coordinated with the estate documents.

Fitting Insurance into the Fee-based Picture

Insurance is sold on commission almost everywhere, which is why oversized permanent policies get pitched to families whose actual need is cheap term. Attend is fee-based: when implementation involves insurance products, commissions are disclosed before anything is placed, and the recommendation comes from the plan's math, not the product's payout, see our disclosures for exactly how that works. The insurance review inside protection planning starts with the needs calculation above and frequently ends with more coverage and lower total premiums than clients arrived with.

Tony Colunga · Founder, Attend Wealth

Tony leads Attend Wealth, a fee-based wealth management firm in Atlanta serving professionals, families, and business owners. Advisory services are held to a fiduciary standard. More about Attend