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How Much Life Insurance Do I Need?

Updated: Aug 17, 2023

Easy-to-follow guideline for determining how much life insurance you need to leave your family well supported in the event of your passing

When it comes to life insurance, we are all a bit skeptical. And, rightfully so! We're making a big investment!

We question what we genuinely need—especially if we feel like someone is trying to sell us something. Sure, the idea is wholesome (setting your family up for success in the event of your passing), but we may wonder about the motivations of someone selling to us.

It's normal to question the opinion of the folks giving you advice at times because, after all, they may be making money off of your purchase.

So, how much life insurance do you really need? And how can you tell!? We are here to offer some independent advice.

The traditional rule of thumb for life insurance savings

A traditional rule of thumb for life insurance is to purchase 10X the amount of your current annual income. We find this method dated and flawed.  

That's right. The New and Pocketnest-approved rule of thumb for how much you should invest in life insurance starts with the 10X rule—and tacks on an additional $100,000 per child. You could add even more if you'd like to cover the cost of college tuition for your children.

Tips for determining how much life insurance you need

What's the simplest, most efficient way to determine how much life insurance you need to purchase? Well, log onto the Pocketnest app and walk through the insurance theme. Here, we'll coach you through each step of determining how much life insurance to purchase for your family. And, we even have a life insurance calculator! Take it for a spin! It's easy!

Pocketnest life insurance app screens

If you'd rather go at it the traditional pen and paper route, that's cool, too! Just like creating a budget or building your five-year plan, we all have our methods that work for us.

Start with the life insurance rule of thumb mentioned above (10X your current annual income + $100K per child you have). Then, think through the following questions:

  • How many years of income replacement would your family need?  Keep in mind, with investment and compounding, the insurance proceeds will grow each year. That's right! If your funds are invested properly, they'll earn between 4-7 percent each year. Over time, that sure adds up.  

  • How will your surviving spouse's lifestyle change, and how much will that cost them? In addition to earning an annual income, how else will your family's life change in the event of your unexpected passing? For example, will a move be necessary? Will the spouse need to shorten their workload, and therefore bring in less money themselves? Will additional childcare coverage be needed?

  • How much total debt will need to be paid off? Keep in mind that SOME student debt may be forgiven in the event of your passing. Don't forget to consider all types of debt, here: mortgage, rental real estate, personal credit card debt, RVs, boats, etc.

  • Will you want to cover college tuition expenses for your children? If so, $100,000 per child is a good place to start—minus what you think you have saved already for this purpose.

  • Do you have family inheritances coming your way? If you have a sizable inheritance coming your family's way, you can always take that into consideration for how much life insurance you need to purchase.

  • Do you already have life insurance? Do you have life insurance that will cancel as you change careers?

Life insurance formula

Try the below life insurance formula as a place to start to determine how much life insurance you should purchase. Then, alter it based on what makes you feel comfortable.  

Add together the following:

10X Annual Income* + Lifestyle Changes for Surviving Spouse + Total Debt + $100K X Number of Children

*or another factor 10-15X your annual income based on your comfort

This formula will get you to a decent range of how much life insurance you need to purchase to ensure your family is well supported in the event of your passing.

Want more help? We've got you covered. Log onto the Pocketnest app and walk through the insurance theme and life insurance calculator for a more accurate number.

Great news! The Pocketnest app is now available! Download Pocketnest and get your finances in order—in just 10 minutes a month! No jargony finance-speak, pricey fees or in-person meetings required.

Have questions? We love your questions! Email us at

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