So you’ve decided to take steps to protect your family financially. An investment in life insurance allows you to leave behind money they can use to meet both today and tomorrow’s needs. Now the big question is: How much coverage do you need?

The life insurance rule of thumb is to purchase a policy up to 10 times your annual income. Think about that number for a moment. Does it give your family enough to cover all of their major expenses? Is it too much? While it’s a good starting place for determining life insurance coverage, it’s not a one-size-fits-all solution.

What is the life insurance rule of thumb?

When calculating the amount of life insurance needed, one rule of thumb to consider is to buy between seven and 10 times your annual income. This amount of insurance coverage aims to provide your loved ones with enough money to cover their needs for the near future and plan ahead for the years to come. That may include:

• Income replacement for numerous years while they work to rebuild after the loss
• Future expenses for your children, such as covering the cost of college tuition for each one
• Paying off the mortgage balance in full
• Other debts, including credit cards, end-of-life medical bills, and care needs
• Funeral expenses, like a burial site, casket, or memorial service

While 10 times your income may seem like quite a bit, these expenses add up quickly. Take a few minutes to estimate the cost for each of these items – and others – based on your current budget.

Why the rule of thumb doesn’t work for everyone

There’s no such thing as a life insurance policy that fits everyone’s needs. That’s a good thing. When shopping for life insurance quotes, it’s important to choose a policy that’s right for your family’s needs and your personal wishes.

There are some common situations where the rule of thumb can fall short:

Sole breadwinner

If you’re the only income earner in your family, there’s a lot riding on your shoulders financially. If something happens to you, your family would need not only to continue to cover expenses, but also to find a new source of income. If you have young children, you may also need enough to cover childcare costs if your partner now needs to work.

As a sole breadwinner, 10 times your income simply may not be enough. You might want to boost this number significantly to provide ample financial support to your family. A bigger payout can allow the surviving parent to continue to stay at home and continue to raise your children the way you planned.

Stay-at-home parent

The life insurance rule of thumb amounts don’t apply to a non-income earner in the family, such as a stay-at-home parent. After all, 10 times 0 is 0. Yet, any stay-at-home parent knows how much they contribute to the family. If you passed away, your partner would likely need to hire someone to care for the kids, keep up the house, run errands and more while they continue to work.

Even in situations where there are no dependents, financial hardship can occur when one partner passes on, especially if they carried significant debt or had other obligations.

While insurance companies look at your income when you apply for life insurance, you don’t need an income to qualify. Stay-at-home spouses can often qualify for half of their working partner’s income.

Big debts and financial goals

Are you paying off major student loans or credit card debts? Hoping to open a family business? These financial plans should factor into your ideal coverage amount.

In a family where there is significant debt, determine how much insurance your partner would need to pay off that debt if you died. This could be debt from personal expenses, real estate purchases, business investments, or school loans.

Life insurance policies can also work well to leave money behind to family members or specific goals. A parent, for example, may want to leave behind a chunk of money to help each child buy a home. Parents may decide they want to pay for their children’s college education. If you have four children going to college, that’s going to add up quickly.

Another goal may be to have finances available to cover the cost of an aging parent. In some situations, you may need to leave behind money to help cover the cost of residential or in-home care.

What do you want to take care of through life insurance?

As you think about the life insurance rule of thumb, ask yourself what’s really important to you. What do you want your loved ones to have available to them if you pass on early?

If you’re unsure where to get started, check out our life insurance calculator. It’s a simple-to-use tool that gives you a more customized idea of how much insurance you need.

Fidelity Life is here to answer your questions and walk with you every step of the way. Get in touch with us or compare life insurance quotes today.

At Fidelity Life, our goal is to make life insurance simple, affordable, and understandable for everyday families. This content is intended for educational purposes only. Each post is carefully fact-checked, reviewed, and updated regularly to ensure the information is as relevant as possible.