People type this into search every day: how much life insurance do I need.
The usual answer is a multiple of income. Five times. Eight times. Sometimes ten. The National Association of Insurance Commissioners reports that some experts suggest five to eight times current income. Then it tells you to walk the actual bills instead.
This page is a labeled example. It is not a policy quote, and it is not insurance or financial advice.
Add the bills that continue, then subtract what is already there
The life insurance needs calculator uses:
income × replacement share × years + debts + future costs − assets and existing coverage
Income support is not discounted for investment returns. Needs change over time and by household. The tool says both of those things in its assumptions.
Fig 1
From pay to a coverage gap
Replace a share of income for a set of years, then add what still has to be paid
The default path is $714,000 of income support plus $400,000 of debts and future costs, minus $240,000 already on hand.
The NAIC life insurance consumer page starts with questions, not a multiple. How much of the family income do you provide. How survivors pay monthly bills, day care, college, and final expenses. Whether anyone else depends on you. Whether you want money left to family or an organization. How inflation changes later years.
Its Life Insurance Buyer’s Guide repeats the same idea. How much to buy depends on the financial needs that continue after your death. Supporting a family, paying for education, and paying off a mortgage are the examples it names. It also asks whether workplace coverage is enough, and whether you can take that coverage with you if you leave the job.
The Department of Veterans Affairs coverage-needs page says individual needs vary. Its calculator is built from debts, assets, and income. That is the same three piles, in different boxes.
If you are in the EU, EIOPA’s consumer-protection pages are the supervisory starting point for insurance products. They do not publish a household dollar target.
The published $874,000 gap
Here are the calculator defaults:
- annual income to replace: $85,000
- years of support: 12
- mortgage and other debts: $280,000
- education, care, and final costs: $120,000
- savings and existing coverage: $240,000
- income replacement share: 70%
Income support: 85000 × 0.70 × 12 = $714,000.00
Debts and future costs: 280000 + 120000 = $400,000.00
Need before assets: 714000 + 400000 = $1,114,000.00
Estimated coverage gap: 1114000 − 240000 = $874,000.00
Calculator result
Life insurance needs
- Annual income to replace
- $85,000.00
- Years of support
- 12 years
- Mortgage and other debts
- $280,000.00
- Education, care & final costs
- $120,000.00
- Savings and existing coverage
- $240,000.00
- Income replacement share
- 70%
$874,000.00
estimated coverage gap
- Income support
- $714,000.00
- Debts & future costs
- $400,000.00
- Assets & existing coverage
- $240,000.00
Fig 2 · 1/3
The $1,114,000 pile before assets
$85,000 income, 70% replacement, 12 years
Income
$714,000
Debts
$280,000
Future costs
$120,000
Income support is $714,000, 64.1% of the pile.
Debts and future costs add $400,000. Assets then cut the gap to $874,000.
The $240,000 already there is 240000 ÷ 1114000 = 21.5% of that pile. The remaining 78.5% is the $874,000 gap.
Fig 3 · 1/3
Need, assets, gap
Calculator defaults
Coverage math
Need
$1,114,000
Assets
$240,000
Gap
$874,000
The need before assets is $1,114,000.
Assets of $240,000 leave an $874,000 gap.
Set assets to $0 and the same bills print $1,114,000.00. Raise assets to $400,000 and the gap falls to $714,000.00, which is the income-support line by itself.
A multiple of income skips the mortgage
The NAIC page says some experts suggest five to eight times current income. On $85,000 that is:
- 5 × 85000 = $425,000
- 8 × 85000 = $680,000
People also search for a ten-times rule. 10 × 85000 = $850,000. That sentence is not on the NAIC page. I am only multiplying the default income so you can see it next to the needs formula.
Fig 4 · 1/4
Multiples versus the needs gap
$85,000 income. Needs path uses the published defaults.
- Coverage
| Category | Coverage |
|---|---|
| 5× income | $425k |
| 8× income | $680k |
| 10× income | $850k |
| Needs gap | $874k |
Five times income is $425,000.
The needs gap on the defaults is $874,000.
8 × $85,000 is $680,000. Income support on the default is $714,000. Those two sit near each other. The mortgage and the $120,000 future-cost line are why the gap is $874,000, not $680,000.
Change only the debts to $0 and keep everything else:
Gap: $594,000.00
Now 8 × income is $86,000 above the gap. The multiple was high once the mortgage left the box. It was low when the mortgage stayed in.
A second labeled household, still 70% and 12 years: $60,000 income, $180,000 debts, $80,000 future costs, $150,000 assets.
Income support: 60000 × 0.70 × 12 = $504,000.00
Debts and future costs: $260,000.00
Gap: $614,000.00
8 × $60,000 is $480,000. That multiple now undershoots by 614000 − 480000 = $134,000.
A larger labeled path: $120,000 income, 15 years, $400,000 debts, $180,000 future costs, $320,000 assets.
Income support: 120000 × 0.70 × 15 = $1,260,000.00
Debts and future costs: $580,000.00
Gap: $1,520,000.00
8 × $120,000 is $960,000. The gap is $560,000 higher.
The multiple is a search shortcut. The NAIC questions are the method.
Years of support move the number more than people expect
Hold $85,000, 70%, $280,000 debts, $120,000 future costs, and $240,000 assets. Change only the years.
- 5 years: income support $297,500.00. Gap $457,500.00.
- 8 years: income support $476,000.00. Gap $636,000.00.
- 10 years: income support $595,000.00. Gap $755,000.00.
- 12 years (default): income support $714,000.00. Gap $874,000.00.
- 15 years: income support $892,500.00. Gap $1,052,500.00.
- 20 years: income support $1,190,000.00. Gap $1,350,000.00.
Calculator result
Life insurance needs
- Years of support
- 10 years
$755,000.00
estimated coverage gap
- Income support
- $595,000.00
- Debts & future costs
- $400,000.00
- Assets & existing coverage
- $240,000.00
Fig 5 · 1/6
Same bills, more years
$85,000, 70%, $280,000 debts, $120,000 future costs, $240,000 assets
Coverage gap
- Gap
| Point | Gap |
|---|---|
| 5y | $458k |
| 8y | $636k |
| 10y | $755k |
| 12y | $874k |
| 15y | $1.1m |
| 20y | $1.4m |
At 5 years the gap is $457,500.
At 20 years the gap is $1,350,000.
Each extra year on this path adds 85000 × 0.70 = $59,500 of income support. That is why 12 years to 15 years adds $178,500, and 15 years to 20 years adds $297,500.
The calculator does not shrink later years for investment returns. A dollar in year 12 counts the same as a dollar in year 1. If you want a present value, that discount is work you do outside this card.
Replacement share is not 100% of the old paycheck
Some household costs fall when one adult is gone. Some do not. The 70% default is a planning input, not a measured national rule.
Hold the other defaults and change only the share:
- 0%: income support $0.00. Gap $160,000.00.
- 50%: income support $510,000.00. Gap $670,000.00.
- 70% (default): income support $714,000.00. Gap $874,000.00.
- 100%: income support $1,020,000.00. Gap $1,180,000.00.
The 0% path is “pay the mortgage, the school bill, and the funeral, and stop.” The gap is then only 400000 − 240000 = $160,000. That can be the right box for a household that does not need income replaced. I am not going to pick that for you.
$85,000 a year is 85000 ÷ 12 = $7,083.33 a month. 70% of that month is $4,958.33. Twelve years of that month is the same $714,000.00 income-support line.
Count the house only if survivors would sell it
The net worth calculator is a different snapshot:
cash and investments + property + other assets − mortgage and loans − other debt
Defaults:
- cash and investments: $68,000
- property and vehicles: $340,000
- other assets: $12,000
- mortgage and loans: $248,000
- cards and other debt: $9,000
Total assets: $420,000.00
Total liabilities: $257,000.00
Net worth: $163,000.00
Debt-to-assets: 61.2%
That $163,000 is not the $240,000 in the life-insurance assets box. The two tools ship different examples.
The house is $340,000 of the net-worth assets. If survivors keep living there, that value is not cash they can spend on groceries. The mortgage still sits in the debts box unless a sale or a payoff is the plan.
A labeled pass that treats the house as stay-put:
Liquid assets: 68000 + 12000 = $80,000
Debts they still want paid: $257,000
Keep the default $85,000, 70%, 12 years, and $120,000 future costs, and put $80,000 in assets:
Income support stays $714,000.00
Debts and future costs: 257000 + 120000 = $377,000.00
Gap: 714000 + 377000 − 80000 = $1,011,000.00
Dump the whole $420,000 of net-worth assets into the life tool and keep $257,000 of debts:
Gap: 714000 + 257000 + 120000 − 420000 = $671,000.00
The $340,000 house is what moved those two gaps. Pick the story first. Then type the boxes.
The mortgage payment post is the monthly bill on a loan. The life-insurance debts box is the balance you want gone. Those are not the same number.
Employer coverage already belongs in the assets box
The NAIC buyer’s guide asks whether insurance through the employer is enough, and whether it stays if you leave. Type the current death benefit into savings and existing coverage. Do not add it after the calculator finishes.
A labeled bump that adds one year of the $85,000 income to the default $240,000:
Assets: 240000 + 85000 = $325,000.00
Gap: $789,000.00
The extra $85,000 cut the gap by $85,000. It did not replace the $280,000 mortgage.
If that workplace policy ends when the job ends, the $325,000 path is only true while you stay.
Income protection is a monthly question
A death benefit is a lump sum. A disability or income-protection policy is a monthly check. The income protection gap calculator is the second tool:
desired monthly replacement − policy benefit
and
desired replacement × waiting months
Defaults:
- monthly take-home income: $5,200
- desired income replacement: 75%
- monthly policy benefit: $3,000
- waiting period: 3 months
Desired monthly replacement: 5200 × 0.75 = $3,900.00
Monthly gap: 3900 − 3000 = $900.00
Waiting-period reserve: 3900 × 3 = $11,700.00
Calculator result
Income protection gap
- Monthly take-home income
- $5,200.00
- Desired income replacement
- 75%
- Monthly policy benefit
- $3,000.00
- Waiting period
- 3 months
$900.00
monthly income-protection gap
- Desired monthly replacement
- $3,900.00
- Waiting-period reserve
- $11,700.00
The $11,700 is cash you would need for three months before the policy pays, if those inputs are true. It is not a life-insurance face amount.
Put the life-insurance default month in this tool: $7,083.33 take-home stand-in, 70% replacement, $3,000 benefit, 3-month wait.
Desired month: $4,958.33
Monthly gap: $1,958.33
Waiting-period reserve: $14,874.99
$4,958.33 × 12 × 12 years is the $714,000 income-support line again. The monthly card is the year you cannot work. The life card is the years after a death. Keep them in separate tabs.
The emergency fund post is the cash pile for a job loss or a waiting period. Do not spend that pile in the life-insurance math as if it were a death benefit.
Debt-to-income is what a lender looks at while you are alive. The life-insurance debts box is the balance you want cleared if you are not.
Term and cash value answer a different question
The NAIC page splits products into term and cash value. Term is bought for a period. It pays if you die during that period. Cash value policies can be kept longer and have a savings or investment feature you can use while you are alive. Whole life, universal life, and variable life sit in that second class.
The buyer’s guide says most term policies do not build cash value. Renewable term can continue after the term, usually at a higher premium. It also says workplace coverage is often smaller than the need, and may not travel with you.
I am not going to invent a premium. The $874,000 gap is a planning face amount. The product that holds it, and what it costs each year, is a quote from a licensed insurer. The NAIC page tells you to use your state department of insurance for licensed agents and companies.
Open the life insurance needs calculator with the income you would replace, the years you mean, and the debts survivors would still face. Put only spendable savings and current coverage in assets. Use the income protection gap calculator when the question is a monthly benefit, not a death benefit. Use the net worth calculator to see the house and the mortgage before you decide whether that house is cash.