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How Much Life Insurance Do You Need?

By Ryan Norton
February 22, 2023


Thinking about our mortality isn’t something most of us want to do. But it’s a fact of life that we won’t be here forever. If there are people in your life depending on you financially, you owe it to them to protect and provide for them whether you’re here on this earth or not. Unless you’re ridiculously, independently wealthy, you probably need life insurance.

So how much insurance do you need?

The answer is different for everyone. You need to take into account your own financial situation, family, and goals. A quick rule of thumb is that most people with dependents need anywhere from 8 to 10 times their annual salary in life insurance. To get more specific, I like to use a little easy to remember acronym FDIC – no, not the Federal Deposit Insurance Corporation that covers banks (remember life insurance and investments are not FDIC insured). What I’m talking about is Funeral, Debts, Income, and College.

Funeral Expenses

You might say final expenses to be a little broader. Funerals aren’t cheap. You might have final medical expenses. Maybe you want to provide a little extra money for your spouse to have time off of work. Perhaps you have a lot of family that live out of town and you’d like to be able to assist them with their travel expenses. I typically say go with $25k or so here, unless you need more.


Self-explanatory here. What debts would you like or need to have paid off if you aren’t here? Leaving a surviving spouse debt free is a great start to their financial stability. I’d add up all mortgages, car loans, credit cards, and yes, you can’t forget student loans - can’t get out of those, even by dying!


This is the hardest question to answer, as it involves more complicated math. If you’re married with young kids, your wife and kids may qualify for Social Security benefits while the kids are still young. Does your spouse work? Do you still want your spouse to have to work so hard? If you’ve provided enough to pay off the debts, then you don’t have to worry about those loan payments anymore, however there may still be an income gap for the surviving spouse.

On the other hand, if you’re married and both work and have no kids (or the kids are grown and financially independent), perhaps the surviving spouse would be fine if they’re left debt free. If there is an income gap, you need to calculate the lump sum needed to create that stream of income over the period of time you need it to last. This can be done with a financial calculator with proper assumptions, but it can be complex, so I’d recommend working with a professional here.


This only applies if you have dependents you’re planning to help through school. No judgements from me here. Some people say they paid their way through college, so they want their kids to do the same. Others got help (or didn’t) and so they want to help their kids. Some want to pay tuition only, some want to cover all costs. There’s a big price difference between a two year community college and a four year private school!

As a short cut, I just use the current cost of the college you want to provide ($15k per year public, maybe $30-40k per year private), and hope that investing the death benefit proceeds should you pass will help keep up with the rising cost of college.

Final Analysis

Finally, you just add up what you came up with for Funeral, Debts, Income, and College. That’s a good approximation of how much life insurance you may need. There are lots of different types of life insurance, you may have some through work or can purchase some on your own. The type of insurance you buy usually comes down to affordability, but the most important consideration is that you have the right amount of coverage to protect your loved ones. There’s an old adage in the industry – you can’t buy life insurance when you’re dead!

Meet Ryan

Securities offered through Cambridge Investment Research Inc., a broker-dealer, member FINRA/SIPC. Advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Products sold are NOT FDIC insured, have no bank guarantee and may lose value. Cambridge, FSB Wealth Management, and Farmers State Bank are not affiliated.

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