Or, it can help pay off large debts like a mortgage to reduce long-term living expenses for the policyholder’s family and maybe even prevent a spouse from the possible struggle to refinance as a single borrower.

The life insurance proceeds can help cover funeral expenses and potentially leave a small nest egg for a child’s college fund or spouse’s retirement.

That’s possibly more than you have in your retirement accounts right now.īut when you dig into what that money will need to cover, it seems very reasonable.įive to 10 times your annual income is just enough to help most families replace lost annual income for a few years while getting back on their feet – including some time off to grieve. If you make $50,000 a year, for instance and choose coverage at 7 times your annual income, the value of your life insurance policy would be $350,000. Why 5 to 10 times your annual income?įor many of us, five to 10 times our annual income seems like a lot of money. To go from a wide range to the true right amount for you, let’s dive in. But for most, it is a good guide for the range you should consider. Many experts recommend buying a life insurance policy that’s five to 10 times your pre-tax annual income, with a term length that lasts for at least the number of years until your children are out of college or your mortgage is paid off.ĭoes this rule of thumb work for everyone? Of course not. “ How much life insurance do I need?” is a question that’s at the forefront of most life insurance buyers minds.

The ten times rule