How life insurance need is sized
By Jude Wallis
Sizing cover is one subtraction after two additions. Replace $80,000 of income for ten years, which is $800,000, add $200,000 of debts, then subtract $100,000 of assets and $50,000 of existing cover. The need is $850,000.
Coverage need
$850,000.00
Income replacement plus debts, minus assets and cover already in force.
- Income replacement
- $800,000.00
- Net need
- $850,000.00
Put this on a class page: one iframe, free, for Google Sites, Canvas, WordPress or Notion.
On this page
In short
- The income block is annual income times the years of support: $80,000 for ten years is $800,000.
- Debts are added because they survive you, and here that adds $200,000.
- Assets and existing cover are subtracted, since they are already available: $100,000 and $50,000.
- The result, $850,000, is a starting figure to argue with rather than a quote.
- Changing the years of support moves the answer more than any other input.
The four inputs, and what each is for
The income block answers how long the household needs support: $80,000 a year for ten years is $800,000. Debts are added because a mortgage, a car loan or a credit balance does not disappear with the earner. Existing assets are subtracted, because they can be used. Existing cover is subtracted, because it already exists.
On this household the four give $850,000. It is a deliberately simple structure, and its simplicity is what makes it a good first pass: every input is a number you can check rather than a projection you have to believe.
The number of years is the biggest lever
Multiplying income by years means the years choice dominates the answer. Ten years covers a period of adjustment. Eighteen might carry a young child to independence. Working to retirement age is a different number again.
That is a judgement about the household, not about insurance. The second example on this page uses fifteen years on a lower income and produces a bigger income block, which shows how much the horizon matters relative to the salary itself.
What a simple sum leaves out
Inflation is one: $80,000 of income today does not buy $80,000 of goods in year ten, which the inflation calculator makes concrete. Investment return is another, running the other way, since a lump sum invested provides more than its face value spread over ten years. Approaches that discount future income handle both, at the cost of adding assumptions.
There are also costs this shape does not name at all: childcare that a surviving partner suddenly has to buy, education costs with a known date, or a funeral. Add them as debts if they belong in your version of the calculation.
Using the figure
Treat $850,000 as a starting point for a conversation rather than a quote. The type and term of the policy, the health questions and the premium all sit outside this arithmetic. Life and disability insurance covers the products, term against whole life covers the main structural choice, and the life insurance needs calculator lets you move the years and see the answer move. This is educational material, not financial advice.
Worked examples
\$80,000 of income replaced for ten years
A household earns $80,000, wants ten years of support, owes $200,000, holds $100,000 of assets and has $50,000 of existing cover. How much more is needed?
- Income block: 80,000 times ten years is $800,000.
- Add the $200,000 of debts, because they survive the earner.
- Subtract assets and existing cover: , so the need is $850,000.
The need is $850,000 of additional cover.
A longer horizon on a smaller income
A second household earns $60,000 and wants fifteen years of support. Debts are $150,000, assets $200,000 and existing cover $100,000.
- Income block: 60,000 times fifteen is $900,000, larger than the first household's despite the lower salary.
- Add 150,000 of debts, then subtract 200,000 of assets and 100,000 of cover: $750,000.
The need is $750,000. A longer horizon raised the income block, and stronger assets brought the final figure back down.
Common questions
How many years of income should I replace?
As many as the household would need to reach its next stable point, which is usually a childcare or retirement milestone.
Should retirement accounts count as assets?
Only to the extent they could be used for this purpose. Counting money that is committed elsewhere understates the need.
Does this account for inflation?
No. This shape is a plain sum, so a longer horizon deserves a look at what inflation does to the income block.
Is this financial advice?
No. It is educational material about sizing a cover amount.
Keep reading
This page is educational material, not financial advice. The figures come from the formula shown and assume the inputs you enter hold for the whole term. Your own rate, fees, taxes and timing will differ, so treat the output as arithmetic to check a decision against, not as a recommendation.