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Bottom Line Up Front

  • Life insurance is important if other people depend on your income, but it takes planning to know how much to buy.
  • To decide, consider how much money you already have in savings and coming from other sources, and how much money your loved ones will need to get by.

Time to Read

2 minutes

April 14, 2022

The purpose of life insurance is to make sure your dependents and loved ones have what they need for living expenses if you pass away. The amount of life insurance you need depends on several factors, and the premiums you pay rise as the death benefit increases, so it’s important not to buy too much or too little. There’s a rule of thumb that suggests buying life insurance that’s 5 to 10 times the cash value of your annual income. Still, you can base the amount of coverage you get by considering:

  • what resources your beneficiaries would already have
  • the likely coverage your dependents will need
  • one-time and long-term financial obligations, such as funeral expenses and college tuition

Here are some things to think about before talking to a life insurance agent:

Future Resources


The more money you have in 401(k)s, IRAs and savings accounts, the better off your family will be and the less insurance money they’ll need.

Spouse’s income

If your spouse works, consider how far that annual salary will go toward expenses. If a spouse has active income from a retirement plan, that can also play a role in picking the best life insurance policy.

Social Security

Survivor benefits may meet part of your family’s financial needs and future expenses. According to the Social Security Administration, you earn credits toward survivor benefits every year. You can learn how the credit system works and try out some planning calculators on their website.

Future Needs

Income replacement

This is a big part of your financial plan. A simple method of figuring out how much income your insurance will need to replace is to multiply your current annual income by the number of years your family would need support. Once you have this number, you’ll need to add some extra cushion to guard against inflation.

Spending habits

It’s also important to see what you spend in a month. You can look at your bank statements or use our budgeting tool to get an idea of where your money goes.

Outstanding debt

Many people forget about debt when they’re thinking about life insurance. Some debts, though, such as mortgage payments, continue if you die. State laws vary, but for debts that will outlive you, such as private student loans, car loans and joint credit cards, you’ll need enough life insurance to cover both principal and interest.


If you have kids, this can be a big expense. You’ll need to know how long they’ll need care, what type and monthly costs. Add extra for cost increases.


You’ll want to make sure educational expenses are covered. One way to plan for that future cost is to take the current cost of a target school and add 5% per year.

End-of-life expenses

This can vary a lot. But experts suggest following this rule of thumb: Budget $10,000 into your life insurance policy for final expenses.

Once you determine how much your family needs, subtract what you expect to have in savings and other income. The difference is the amount of life insurance you may need. If you aren’t sure what insurance costs, whether you’re military or looking for other types of insurance, you can get life insurance quotes from Navy Federal Investment Services* in minutes.

Key Takeaways Key Takeaways


Navy Federal Financial Group, LLC (NFFG) is a licensed insurance agency. Non-deposit investments, brokerage, and advisory products are only sold through Navy Federal Investment Services, LLC (NFIS), a member of FINRA/SIPC and an SEC registered investment advisory firm. NFIS is a wholly owned subsidiary of NFFG. Digital Investor is offered through NFIS. Insurance products are offered through NFFG and NFIS. These products are not NCUA/NCUSIF or otherwise federally insured, are not guaranteed or obligations of Navy Federal Credit Union (NFCU), are not offered, recommended, sanctioned, or encouraged by the federal government, and may involve investment risk, including possible loss of principal. Deposit products and related services are provided by NFCU. Financial Advisors are employees of NFFG, and they are employees and registered representatives of NFIS. NFIS and NFFG are affiliated companies under the common control of NFCU. Call 1-877-221-8108 for further information.

This content is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.