How to Calculate the Amount of

  Life Insurance You May Need

To analyze your need, you must consider the reasons for buying life insurance.

The main reasons are:

  • Replace your income for your family
  • Pay debts
  • Pay for final expenses

Some other reasons may be:

  • Future education for children
  • Leave extra money to loved ones
  • Leave money to a charity
  • Estate protection

To establish the amount you need to replace your income, the generally accepted formula is to take your annual income and multiply it 10 times, and then subtract 25% of that amount. The idea is that you leave behind enough money for your loved ones to invest, so that at a 10% return they would receive the same income as though you were still able to provide for them. The reason you subtract 25% is because your expenses as a consumer and member of the family are no longer there. Add to this “income replacement”, an amount to cover your final expenses and pay your debts, and you have a rough total of your insurance needs.


If you are concerned about the other potential needs after you are gone, it is quite simple to add an amount as a “leave behind lump sum” over and above what you might consider a “present need” to cover the other things that you wish to provide for.


Please keep in mind that we are dealing with basic life insurance needs. This is a quick analysis which doesn’t take into account the concept of “estate protection”. This is where you have accumulated a fair amount of assets or “wealth” and you wish to use life insurance to maintain the value of your estate on your death, especially in regard to taxes.



Annual Income __________ x 10 minus 25% = __________

Basic Need _______________


Uninsured Debts _______________

Final Expenses     _______________

Education Fund   _______________

Extra for Family   _______________

Charity                    _______________

Miscellaneous      _______________

Needs for next _____ years = _______________


Final Expenses   _______________

Extra for Family  _______________

Charity                   _______________

Miscellaneous     _______________

Needs for remainder of life = _______________


Please contact me for a thorough
analysis of your personal or business needs.