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How To Calculate An Optimal Life Insurance Coverage Level

Besides choosing your policy type and naming your beneficiary, setting your coverage and premium amounts will be the most important decision you'll make during the life insurance buying process.


This page:

Shows you two ways to quickly estimate your coverage needs.

Lists the information necessary for a detailed quote.

Outlines how to calculate your exact coverage need.

Life Insurance for as Little as $20/Month?

Premiums can vary by as much as 50% for the same coverage and options, so it pays to get quotes from as many reputable insurers as possible.

Use our quick 60-second quote form to find the coverage that's right for you, and a monthly premium that you can afford.

Click here to get your fast free quote

How Much Coverage Will You Need?

Any comprehensive life insurance website will include some kind guide for calculating a death benefit amount for your life insurance policy.

Some sites advise you to just estimate while others want you to unearth all your financial statements, bills, loans, and receipts and do some serious math.

Our position is that while it is quite important to get an accurate amount of coverage, you won't get much closer to the "right" figure by itemizing every household expense. You need to know which expenses really count and which don't. So save some time, and your sanity, by following our simple directions!

Two Simple Estimates

The first order of business is to get a rough estimate on your benefit need.

An easy way to calculate this is to multiply your annual salary by eight.

For a slightly more accurate estimation, multiply your salary by five and add to it your current expenses plus your expected future expenses - including things like mortgages, debts, and loans.

One important thing to remember during this process is that while you certainly don't want to be caught underinsured, financially overextending yourself can be just as harmful. Life insurance does little good if you can't afford it.

Calculating A More Accurate Quote

If you're serious about buying a policy in the near future, you'll want a more accurate life insurance quote. Take some time to assess the exact coverage you and your family require. Your family's long and short term financial needs should be accounted for in your calculations. These include:

expenses that precede your death such as medical bills

expenses accrued as a result of your death such as funeral costs, estate taxes and fees.

payments for debts in your name such as credit card debt, auto loans, college loans, and business loans

future costs of your family's everyday life, such as the expense of child care, education, clothing, food, transportation, and utility bills

remaining amount of your mortgage and other unpaid loans

Add these up - the total represents your family's needs.

But don't stop there! Now you need a figure on your available assets.

You may have other sources of income, besides your salary, that your family will still be able to rely on even after your death. These include mutual funds, stocks, bonds, and other life insurance policies.

Subtracting the needs figure from the assets figure should give you a pretty reasonable picture of the wisest death benefit for you.


Sidebar
Even if you are not 100% sure of what your optimal coverage would be, you can start by getting a fast quote from one of our partner carriers, and see how much a policy would cost you. You might be surprised at how small your monthly premiums could actually be.








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