Life Insurance: It’s boring, but your family could depend on it. So, how much do you need?

Austin Costello |

How much life insurance do I need?

There are all types of advice and rules of thumb for calculating how much life insurance you may need. But when it comes to something as important as your family’s well-being, popular anecdotes just don’t seem sufficient.

So, how should we decide on an amount then? Should life insurance be a certain multiple of your salary? Should get enough insurance to cover x number of years of expenses?

These types of questions can be good places to start, but the best way to calculate how much life insurance you may need is to put real thought into what the benefit would be paying for, and calculate what it would cost to achieve those goals.

Below are a few of the ways you can think about how much life insurance you’ll need.

Income Replacement: Consider how many years your dependents would need support if you were no longer around. A common rule of thumb is to aim for 10 times your annual salary, but that may not tell the whole story.

  • Do you have young kids?
  • Will your spouse want to continue working and require childcare?
  • How much of your income was being saved? That will need to be accounted for.

Debt and Liabilities: Calculate all outstanding debts, including mortgages, car loans, credit card debt, and any other personal loans. Some loans will “go away” if you pass, but not before depleting your estate. If you have debt in your name and you have savings that you’d like to pass on, make sure there is enough insurance money to cover the loans.

If your beneficiary plans to continue working, it’s possible that they could support their own mortgage or car payment, but many people still choose to purchase enough insurance to cover these goals.

Education Expenses: Factor in the future education costs for your children, which can be a significant expense.

Final Expenses: Here’s an unfortunate truth – death isn’t cheap. Funeral arrangements, burial, probate expenses and more can add up, and someone has to pay that bill. If you don’t have savings set aside for that, an insurance policy can be a great way to make sure a loved one doesn’t get saddled with expensive final expenses.

Inflation and Future Financial Goals: Unless you’ve been living under a rock for the last few years, you’re keenly aware of the impact inflation can have on everything from food to medical expenses. Make sure your insurance amount accounts for price increases over time.

Remember to update your life insurance as you go

By summing these amounts, you can get a clearer picture of how much life insurance coverage you need. But here’s an important consideration that many people forget.

As you progress through your career and accumulate more savings, investments, and equity in your home, you can subtract those numbers from your life insurance needs.

Too many people select their insurance benefits early in their career and then never change them. They may be paying a high monthly cost for life insurance, but their kids are no longer dependent on them, their mortgage is paid off, and they have $1m in investments.

There comes a point in most people’s lives where it no longer makes sense to have life insurance at all because they can consider themselves “self-insured”. In other words, they have enough assets to cover the needs of whoever is dependent on them.

Life Insurance Options for Federal Employees

Federal Employees' Group Life Insurance (FEGLI)

FEGLI is the largest group life insurance program in the world and offers federal employees term life insurance. Here are some key points about FEGLI:

  • Basic Coverage: Automatically provided to most federal employees, it offers coverage equal to your salary rounded up to the next $1,000 plus an additional $2,000. The primary benefit of FEGLI Basic is that it’s subsidized by the government and the price doesn’t increase with age.
  • Optional Coverage: Employees can choose additional coverage for themselves (Option B), their spouses (Option C), and their dependent children. Additional coverage through FEGLI is not subsidized by the government and gets more expensive the older you get. Typically the best use for optional coverage is to start with a higher amount when you’re young, and reduce the amount over time as you accumulate more assets.

Private Term Life Insurance

Private term life insurance is another viable option and often provides more flexibility and potentially lower costs than FEGLI, especially later in life:

  • Customizable Terms: Policies are available for various terms, typically ranging from 10 to 30 years, allowing you to match the policy term to your financial needs.
  • Level Premiums: Many private term policies offer level premiums, meaning your premium stays the same throughout the term of the policy. This differs from FEGLI part B where the premiums increase every 5 years.
  • Portability: Unlike FEGLI, private term insurance is not tied to your federal employment, making it a portable option if you change jobs.

Whole Life Insurance

Whole life insurance provides lifelong coverage and includes an investment component known as cash value. However, it comes with higher premiums and some significant drawbacks:

  • Higher Cost: Whole life insurance premiums are significantly higher than term life insurance premiums for the same amount of coverage.
  • Complexity and Fees: Whole life policies are more complex and often come with various fees that can diminish the return on the cash value component.
  • Investment Performance: The investment performance of the cash value component may not be as strong as other investment options, such as stocks or mutual funds.


First, calculating how much life insurance you need involves a thorough assessment of your financial situation and future obligations. It’s not as simple as using a set multiplier on your salary or annual spending.

Federal employees have access to FEGLI, which provides a convenient option, but exploring private term life insurance can sometimes yield better terms and cost savings depending on how long you intend to carry it.

Whole life insurance, while offering lifelong coverage and a cash value component, is typically not the best option for younger individuals due to its high costs and complexity.

By carefully considering your needs and the available options, you can make a well-informed decision to protect your family's financial future.

Originally posted on FEDWeek.

This article is intended to assist in educating you about insurance generally and not to provide personal service. They may not take into account your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you. In addition, state insurance laws and insurance underwriting rules may affect available coverage and its costs. Guarantees are based on the claims paying ability of the issuing company. If you need more information or would like personal advice you should consult an insurance professional. You may also visit your state’s insurance department for more information.