How much life insurance do you need?

Posted : May 4, 2020

Updated : May 29, 2024

Spoiler alert: it’s not necessarily 10x your income. We’ll break down several different methods of calculating how much life insurance you need and share some factors to personalize the numbers for you.

Simple methods to estimate how much life insurance you need

Step 1:

Find your base number, which is the basic amount of life insurance coverage you need. You can use one of several methods:

The classic 10x rule¹

While this method is the most common, it can work as a base as long as you adjust it based on factors we’ll discuss in the next step. The 10x rule is simple: take your annual salary and multiply it by 10 to determine how much life insurance you need. So, if you make $50,000, your base life insurance amount is $500,000.

The Obligations – Earnings method²

This method takes into account your future financial assets and obligations to calculate a more accurate base number.

First, calculate your financial obligations by adding these numbers:

(+) annual salary (multiplied by the number of years you want to replace your income)

(+) mortgage balance

(+) other debts (loans, car payments, etc)

(+) future needs such as college costs

Take that total, then subtract your liquid assets:

(-) savings accounts

(-) existing college funds

(-) current life insurance

The resulting figure is your starting life insurance estimate.

The DIME method³

DIME is an acronym that stands for Debt, Income, Mortgage, and Education expenses. In short, you add the expenses in each category to get your base life insurance number.

To calculate yours, add the following:

(+) your existing debts

(+) annual income (multiplied by the number of years you estimate your dependents will have to live off it)

(+) your remaining mortgage balance

(+) estimated future education costs for your children

Step 2:

Make these adjustments to tailor the numbers to your life.

You might need less life insurance if:

You have existing life insurance. Make sure you factor in existing policies in your calculations.
You’re single without children. With fewer people depending on your income, you may not need as much coverage. That said, insurance is still a good idea to cover any end of life expenses as well as financial obligations if you have cosigners on any debts.

You might need more life insurance if:

You’re taking care of elderly parents or could be in the future. Costs could include assisted living or in-home care.
You want to leave a legacy gift to a charitable cause with meaning to you.

Don’t forget to factor in:

Childcare costs, especially if you’re a stay-at-home parent.
Education costs (if you used the 10x method).
Funeral costs. As much as we all hate to think of it, it’s worth it to spare your loved ones the stress of covering all these expenses (an average of $10k)⁴

Your next step toward the right coverage

Figuring out life insurance can seem daunting, but it doesn’t have to be. We believe it’s as much about living a better life today as it is about what you’ll leave behind tomorrow. Protecting yourself now is the first step in living a longer, healthier life. That's why, every John Hancock insurance policy includes Vitality, a program that offers rewards and discounts for living healthy.

Frequently asked questions

For most people, coverage makes sense as long as they have financial dependents, outstanding debts or an unpaid mortgage. Review your policy at every major life milestone to make sure it still fits your needs.

You can update beneficiaries and typically increase or add coverage as needs change; many customers add coverage after marriage or when they have children. Contact a John Hancock agent to review options and underwriting requirements.

If you take on a larger mortgage, review your life insurance to make sure it still covers your family’s needs. Homeowners may want enough coverage to cover the mortgage, taxes, and home maintenance, and possibly the full mortgage.

Yes, separate policies are usually the better choice for spouses because each person can have coverage tailored to their own income, debts, and responsibilities. Families with a spouse or children often need additional coverage to protect their financial needs.

Disclaimer

This article is for educational purposes only and does not constitute financial, legal, or tax advice. Coverage needs vary by individual. Speak with a John Hancock life insurance agent to find the right amount of coverage for your situation.

Citations:

¹ John Hancock: “How Much Life Insurance Do I Need?” https://www.johnhancockinsurance.com/all-articles/financial-fitness/how-much-life-insurance-do-i-need.html (opens in a new tab)
² NerdWallet: “How Much Life Insurance Do I Need?” by Barbara Marquand https://www.nerdwallet.com/blog/insurance/how-much-life-insurance-do-i-need/ (opens in a new tab)
³ Forbes: “How Much Life Insurance Do You Really Need” by Kristin Stoller, January 13, 2020 https://www.forbes.com/advisor/life-insurance/how-much-life-insurance-do-you-really-need/ (opens in a new tab)
⁴ Funeral Wise: “How Much a Funeral Costs and Average Funeral Costs: Your Complete Guide” https://www.funeralwise.com/plan/costs/ (opens in a new tab)

Insurance policies and/or associated riders and features may not be available in all states.

Insurance products are issued by: John Hancock Life Insurance Company (U.S.A.), Boston, MA 02116(not licensed in New York) and John Hancock Life Insurance Company of New York, Valhalla, NY 10595.

MLINY072026821-1