How Much Life Insurance Do You Actually Need?
Ten times your income is a shortcut, not an answer. On a $60,000 salary it says $600,000. Add up what the money genuinely has to do - replace income, clear the mortgage, get two children through education - and the figure is $1,015,000. The shortcut is short by more than $400,000.
The shortcut, and why it misses
“Ten times your income” is the number most people meet first. It is quick, it is memorable, and it has one obvious flaw: it knows nothing about your life.
It does not know whether you have a mortgage or rent. Whether you have children or none. Whether you already have $150,000 of cover through work.
On a $60,000 income it says $600,000 and stops there.
What the money actually has to do
Add up the jobs instead. Someone earning $60,000 with two children and a $250,000 mortgage, from the life insurance calculator:
| What the money must cover | Amount |
|---|---|
| Replace 70% of income for 15 years | $630,000 |
| Clear the mortgage | $250,000 |
| Two children through education | $100,000 |
| Other debts | $20,000 |
| Final expenses | $15,000 |
| Total needed | $1,015,000 |
| Less existing cover and savings | −$150,000 |
| The gap | $865,000 |
$1,015,000 against the shortcut’s $600,000. The rule of thumb is short by $415,000 - and someone relying on it would find out at the worst possible moment.
The direction of the error is not random. Shortcuts ignore mortgages and children, which are exactly the two things that make cover necessary in the first place.
The three numbers people get wrong
Income replacement is the biggest line and the most guessed at. Replacing 70% of $60,000 for fifteen years is $630,000 - more than the entire rule-of-thumb figure by itself. How many years you choose matters enormously, and the honest answer is usually “until the youngest child is independent”.
Existing cover gets double-counted or forgotten entirely. $150,000 of employer cover and savings genuinely reduces the gap. But employer cover ends when the job does. If a large share of your total depends on staying employed, that is worth knowing rather than assuming.
A stay-at-home parent gets nothing. There is no salary, so the shortcut says no cover needed. But the work still has to happen. Childcare, school runs, running a household - someone would have to be paid to do it. That cost is real and it is often larger than people expect.
How long the money would last
Cover is only half the question. The other half is how long the payout survives.
$500,000 supporting a household drawing $42,000 a year, growing at 4% with prices rising 2.5%, lasts about 14 years.
That is a useful reality check. It is not “forever money”. it is roughly enough to get children to adulthood and clear the immediate obligations. If you need it to last longer than that, you need more of it.
Term is almost always the right shape
Once you know the number, the type matters less than people are told.
Term insurance covers you for a set period and costs a fraction of the alternative. Whole life costs many times more for the same cover and builds a cash value inside it.
For the job described above - covering the years when people depend on you - term does it, cheaply. The term vs whole life calculator runs the comparison properly, including investing the premium difference.
Whole life has genuine uses, mostly where cover must certainly pay out at some point. It is a poor investment and a real insurance product; the trouble comes from buying it as the former.
The cover people forget entirely
Life insurance covers dying. It does nothing if you survive and cannot work - which is statistically the more likely disruption during your working years.
Disability cover is the one that handles that, and far fewer people have it. Worse, employer disability cover is usually taxed, so “60% of salary” is not 60% of what reaches you. The disability insurance calculator shows the real figure.
If you are buying life cover and have no disability cover, it is worth pricing both before deciding.
What to do
- Add up the jobs, do not multiply your salary. Mortgage, income years, children, debts, final costs.
- Subtract what you already have - but note how much of it depends on your job.
- Choose a term that matches the years people depend on you, not a round number.
- Cover a non-earning partner for the cost of replacing what they do.
- Check your disability cover while you are at it. It is the gap most people have.
Work out your own figure in the life insurance calculator - it shows both the shortcut and the needs-based answer, so you can see how far apart they are for you.
Common questions about life insurance
Is 10 times my income enough life insurance?
It is a starting point, not an answer. On a $60,000 income it gives $600,000. Working out what the money must actually cover - 15 years of replaced income, a $250,000 mortgage, other debts, final expenses and two children's education - comes to $1,015,000. The shortcut ignores your actual obligations.
How do I work out what I really need?
Add up what the money has to do, then subtract what you already have. Income to replace, the mortgage, other debts, final expenses, and anything you want to fund for children. Take off existing cover and savings. What is left is the gap.
Should I count my existing cover through work?
Yes, but carefully. Employer cover is real money and should be counted - but it usually ends when the job does. If you are relying on it and change jobs, or lose one, the cover walks out with you. It is worth knowing how much of your total depends on staying employed.
Do I need cover for a stay-at-home parent?
Usually yes, and it gets overlooked because there is no salary to replace. The work still has to be done - childcare, running a household - and paying for it is a real cost. Insure the cost of replacing the work, not the income that was never being paid.
How long should the cover last?
Long enough to cover the years people actually depend on you. Until the mortgage is paid and the children are independent is the usual answer. Cover you no longer need is money wasted; cover that ends too early is the thing you were insuring against.