A practical life insurance estimate starts with the money your family would need, then subtracts resources actually available for that purpose. A salary multiple can be a quick reference, but it may miss childcare, an unpaid caregiver’s work, a mortgage, or existing coverage.
Use the worksheet below to prepare for a conversation, not as an automatic prescription for a particular policy amount.
Step 1: List the immediate financial needs
Start with expenses your household would want to address soon after a death. Possible entries include final expenses, a cash cushion, and debts you intend the benefit to help repay. List the mortgage separately if paying it off is a goal.
Do not automatically include every debt in full. Clarify which obligations would remain and what your family’s plan would be. Questions about legal responsibility for a debt belong with an appropriate legal professional.
Step 2: Estimate the annual support gap
Look at the spending that would remain: housing, food, utilities, transportation, insurance, childcare, and other recurring needs. Then consider dependable income available to the surviving household.
The difference is a starting estimate of annual support needed. Use your actual household budget rather than assuming that every dollar of the insured person’s salary must be replaced. Also consider whether a surviving adult would reduce work hours.
Step 3: Choose a support period
How long would that gap need to be filled? A family with a toddler may think about a different period from a household whose children are financially independent. Write down the reason for your chosen time horizon.
For an initial worksheet, multiply the annual gap by the number of years. This simple method does not adjust for inflation, investment returns, taxes, or changes in spending. A more detailed plan can address those factors.
Step 4: Include unpaid work and future goals
A stay-at-home parent or other unpaid caregiver can contribute substantial practical support. Consider the cost of replacing childcare, transportation, household management, or other work if that person died.
List education or other goals separately so you can distinguish essential support from additional preferences. That separation helps if you need to compare several affordable coverage amounts.
Step 5: Subtract available resources carefully
Consider savings specifically available for this purpose and existing life insurance that would remain applicable. Avoid counting the same savings twice. Be cautious about subtracting every retirement dollar or assuming a family would sell its home immediately.
If you have employer coverage, ask what happens when employment ends. Write its portability or conversion terms beside the benefit amount rather than assuming the protection follows you automatically.
A worked example
These are invented planning numbers, not a recommendation:
- Income support: $35,000 per year for 12 years = $420,000.
- Mortgage payoff goal: $180,000.
- Education goal: $40,000.
- Immediate expenses and cushion: $20,000.
- Total needs: $660,000.
- Available savings: $60,000.
- Existing coverage assumed to remain in force: $100,000.
- Illustrative remaining gap: $500,000.
In this example, the annual support figure excludes mortgage payments because the mortgage is counted as a separate payoff goal. Including both would overstate that expense. Your own worksheet should make the same distinction.
Turn the estimate into a policy comparison
Request quotes at coverage levels that bracket your estimate. Compare affordability and the length of the need, then discuss whether term or permanent insurance fits the purpose. The NAIC Life Insurance Buyer’s Guide provides additional questions about needs and policy selection.
When should you revisit the number?
Review your worksheet after a new child, home purchase, major income change, marriage, divorce, or another change in who depends on you. Keep beneficiary information current too.
Bring your completed figures to Jaron Harrison’s life insurance review or request a conversation. Coverage availability and pricing remain subject to underwriting and carrier approval.
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