How much term life insurance do I need?
If someone relies on your income, buy term coverage until your kids are grown, often 5 to 8 times your pay.
New to this?
Life insurance pays money to people you choose, called beneficiaries, if you die. Term life covers a set number of years, like 20, for a fixed yearly price. If you live past the term, it simply ends. It matters most for parents and anyone whose partner would struggle to pay the bills alone.
Read first
Myth
Life insurance is something you buy when you're old.
Truth
It's cheapest when you're young and healthy, and that's when kids and debts are new. NAIC's example puts a 20-year, $250,000 term policy for a healthy 30-year-old at about $160 a year.
Worth memorizing
- 1
You need it when someone depends on you.
A partner, a child or a co-signer on your mortgage. Single with no dependents, you may need little or none.
- 2
Size it from real needs.
Add years of income, debts, kids' costs and final expenses, then subtract savings and existing coverage. In the example, that is $400,000.
- 3
Match the term to the need.
Pick a term that lasts until your youngest child is grown or your mortgage is paid off, often 20 or 30 years.
If someone would be in trouble without your paycheck, I'd buy a plain 20 or 30-year term policy and stop there. Skip the extras. And I wouldn't count on the policy from work alone, since it usually ends when the job does.
Do this today
Write down your yearly income × the years your family would need it, add your debts and kids' costs, then subtract savings and any work coverage. Request three quotes for that amount and a term that lasts until your youngest is grown.
Practice
1 of 3
Who most clearly needs term life insurance?
Life insurance replaces income for people who depend on it. A parent with a partner who relies on their pay is the clearest case.
2 of 3
Your needs add up to $500,000. You have $20,000 saved and $80,000 of coverage from work. How much should you buy?
$500,000 − $20,000 − $80,000 = $400,000. Subtract savings and existing coverage from the total need.
3 of 3
What happens to a term policy when the term ends and you are still alive?
Term coverage simply ends at the end of the term. Many policies let you renew, but at a price based on your older age.
Tips
Get quotes from several insurers
Prices for the same term and amount can differ a lot. Compare identical coverage side by side, and buy only from a company licensed in your state.
Name a backup beneficiary
Add a contingent beneficiary, the person who gets the money if your first choice dies before you. For young children, ask about a trust or custodian.
Don't rely on work coverage
Group life through a job is often 1 or 2 times salary and usually ends when you leave. Count it, but don't let it be your only policy.
Buy while you are healthy
Your health when you apply sets the price for the whole term. Waiting a few years can mean a higher premium or a harder approval.
A worked example: sizing a policy for a young family
Tasha is 32, earns $55,000 a year and has a partner and a 2-year-old. She wants to cover 7 years of income if she dies.
- Income first: $55,000 × 7 = $385,000. Add $25,000 of debt, a $40,000 fund for her child and $10,000 for final expenses. That is $460,000.
- Subtract what already exists: $10,000 in savings and a $50,000 policy from work. $460,000 − $10,000 − $50,000 = $400,000.
- Check it: $400,000 ÷ $55,000 is about 7.3 times income, inside the 5 to 8 times range. She buys a 20-year term, which covers her child to age 22.
- Yearly income$55,000
- Income for 7 years$385,000
- Car loan and card debt+$25,000
- Fund for her child+$40,000
- Final expenses+$10,000
- Total need=$460,000
- Savings−$10,000
- Life insurance from work−$50,000
- Policy to buy=$400,000
Common mistakes
Counting only the policy from work
Group coverage is often small and usually ends when you leave the job. If you get sick later, buying your own policy can cost more or be harder.
Naming a young child directly
Insurers generally won't hand a large sum to a minor, so a court may have to appoint someone to manage it. Name an adult, a trust or a custodian instead.
Buying far more or less than you need
Guessing a round number often misses. Ten minutes with the add and subtract method in the example gives you a figure you can defend.
Going deeper
Term life insurance pays a set amount to the people you name if you die during the term, often 10, 20 or 30 years. Buy it once someone depends on your income, and size it from what they would need, not from a rule of thumb alone.
Term is the low-cost kind
Term life covers a fixed period and builds no savings. NAIC notes it generally has lower premiums in the early years than permanent policies like whole life, which mix coverage with a cash savings account.
The common range is 5 to 8 times income
NAIC says some experts suggest 5 to 8 times your current income. Use that as a check on your own number, not a replacement for it.
The payout is usually tax free
The IRS says life insurance proceeds a beneficiary receives because of the insured person's death generally aren't included in gross income. Interest paid on top of the benefit is taxable.
The beneficiary form decides who gets paid
The money goes to the people named on the policy, no matter what your will says. Update the form after a marriage, divorce or new child.
Who needs life insurance
Ask one question: if you died tomorrow, would someone struggle to pay their bills? A partner who shares rent or a mortgage, a child, a parent you support or someone who co-signed a loan with you all count. If the answer is yes, you need coverage.
If you are single, have no children and no one relies on your pay, you may need little or none. A small policy, or your savings, can cover final expenses. A stay-at-home parent also needs coverage, because paying someone else for childcare and running the house costs real money.
How to figure out how much
Start with income. Multiply your yearly take-home or gross pay by the number of years your family would need it, often until your youngest child finishes school. Seven to 10 years is a common choice for young families.
Add debts you would want paid off, such as a car loan or the mortgage, plus a fund for your children's future costs and about $10,000 to $15,000 for final expenses. Then subtract what is already there: savings, investments and any life insurance from work. What is left is the amount to buy.
NAIC lists the same building blocks: medical and burial costs, support while your family adjusts, monthly bills, day care, college and retirement. If your answer lands far outside 5 to 8 times your income, check your inputs again.
How long a term to pick
Choose a term that lasts as long as the need. If your youngest child is 2, a 20-year term covers them through age 22. If you just took out a 30-year mortgage, a 30-year term matches it.
Most term policies keep the same premium for the whole term. When the term ends, coverage stops, or you can renew at a much higher price based on your age then. By that point, kids are often grown and savings are larger, so many people simply let it end.
Term versus whole life
Permanent policies such as whole life and universal life last your whole life and build cash value you can borrow against. NAIC notes their premiums tend to be higher, because part of each payment goes into that savings piece.
For most young families, the cheaper term policy covers the years that matter. If someone pitches a permanent policy as an investment, ask for the fees in writing and compare it with buying term and investing the difference in a retirement account.
How to buy a policy
Get quotes for the same amount and term from at least three insurers, directly or through an agent. You will answer health questions and may need a short medical exam. Smoking, health conditions and age move the price the most.
Before you sign, check with your state insurance department that the company and agent are licensed. NAIC's advice is simple: never buy a policy you don't understand. Keep the policy number and the insurer's name where your beneficiaries can find them.
Questions people ask
How much does term life insurance cost?
It depends on your age, health, the amount and the term. NAIC gives one example of about $160 a year for a 20-year, $250,000 policy for a healthy 30-year-old. Smokers and older buyers pay more. Get real quotes for your own situation.
Is 10 times my salary enough life insurance?
Often it is plenty, sometimes more than you need. Add up your real needs and subtract savings and existing coverage. If your result is between 5 and 8 times income, you are in the range NAIC mentions.
Do I need life insurance if I'm single?
Usually not much, unless someone relies on you, such as a parent you support or a co-signer on a private student loan. Savings or a small policy can cover final expenses.
Can I have more than one beneficiary?
Yes. You can name several people and set the percentage each one gets. NAIC suggests also naming a contingent beneficiary in case your first choice dies before you.
Should I get term or whole life?
For most young families, term covers the years when people depend on you at a much lower price. Whole life costs more because it adds a savings piece. Compare the fees before you choose it.
Printable worksheet with answer key, free for classrooms. Lesson plan for this unit.
Sources
- NAIC: Life insurance
- NAIC: Life insurance roadmap
- NAIC: Tips to help you buy life insurance
- IRS: Life insurance and disability insurance proceeds
Updated October 4, 2026. General education, not personalized financial, tax or legal advice. Figures are examples. Check current rates and limits before you act.
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