How much life insurance do you need? Start with what the money has to do

Start with the expenses your family would face

Life insurance exists to cover financial needs that would land on the people you leave behind. The Texas Department of Insurance suggests a simple way to size it: think about your mortgage and other debts, how much income would need to be replaced, funeral costs, and college for the kids, then add those up.

The NAIC frames the same exercise as a set of questions. How much of the family income do you provide? Does anyone else depend on you financially, like a parent or a sibling? Would you want money set aside for children to finish their education? How would your family pay final expenses and repay debts? Your answers matter more than any formula, because two households with the same salary can need very different amounts.

Turn the list into a number

The add-up approach gives you a working figure: income you would want replaced (and for how many years), plus the mortgage and other debts, plus final expenses, plus education funding, minus savings and any coverage you already have. The NAIC notes that some insurance experts suggest buying five to eight times your current income, but cautions that working through the questions yourself gives a more accurate amount. Treat any multiple of salary as a starting point, not an answer.

If you have life insurance through work, count it in the total, but ask whether it is enough on its own. The NAIC points out that everyone's needs are different, and that it helps to understand how much your family depends on you financially, the value of the services you provide, and expenses like end-of-life medical bills and burials. Group coverage also usually ends when the job does, so it rarely covers the whole need by itself.

Match the length of coverage to the length of the need

Most needs shrink with time. Children finish school, the mortgage gets paid down, and savings grow. That is why the Texas Department of Insurance gives the example of choosing a term policy that lasts until your children are out of school or while you have a mortgage. Matching the term to the obligation keeps you from paying for coverage years after the need has passed.

The NAIC adds that you can combine cash value insurance with term insurance for the period of your greatest need to replace income. It also recommends reviewing your coverage every few years, because income and needs change. A marriage, a new child, a bigger mortgage, or a parent moving in are all reasons to redo the math, not just the day you first buy a policy.

• List debts, income to replace, funeral costs, and education first.
• Use a salary multiple only as a rough check, not the target.
• Include workplace coverage in your total, and know its limits.
• Pick a term that ends when the obligation ends.
• Re-run the numbers after big life changes.