How much life insurance do you actually need? A worksheet, not a rule of thumb

Step one: replace the income

Start with the annual income your household would lose, then decide how many years it needs to be replaced. For a family with young children, that is usually the years until the youngest finishes school. For a couple with a mortgage and no children, it may be the years remaining on the loan.

A household earning $85,000 with a nine-year-old child is typically looking at twelve to fifteen years of replacement. At $85,000 a year, that is roughly $1,020,000 to $1,275,000 before anything else enters the calculation. This is usually the moment people realize their $150,000 group policy is a rounding error.

Step two: clear the debts

Add the remaining mortgage balance, car loans, student loans, credit card balances and any business debt you have personally guaranteed. The goal is a surviving household that keeps the house rather than one that sells it during the worst year of their lives.

• Mortgage payoff balance, not the original loan amount
• Vehicle loans and leases
• Student loans, including parent loans that do not discharge at death
• Personally guaranteed business debt

Step three: fund the future costs

Childcare is the expense people forget most often, and it is the one that starts immediately. If a surviving parent has to pay for care that the deceased parent provided, that is a real annual cost for real years.

Then add education. In-state tuition, fees and living costs at a Missouri or Kansas public university currently run well above $100,000 across four years, and private or out-of-state figures are considerably higher. Fund what you intend to fund, not a national average.

Finally add final expenses. A funeral, burial or cremation, settlement costs and an emergency cushion typically total $15,000 to $25,000 in this region.

Step four: subtract what exists

Now subtract liquid savings you would actually spend, existing individual life policies and the portion of group coverage you are confident you will still hold. Be conservative with group coverage. It typically ends when employment ends and rarely converts at an attractive rate.

Do not subtract retirement accounts you want the surviving spouse to keep for retirement. The point of the calculation is to avoid forcing your family to liquidate the plan you spent twenty years building.

The three common errors

The first is counting group coverage as permanent. It is not; it is a benefit of a job you may not hold in five years.

The second is insuring only the earning spouse. A stay-at-home parent provides childcare, transport and household management that costs real money to replace. We usually recommend meaningful coverage on both adults.

The third is buying permanent coverage before the term need is met. If your budget covers $400,000 of whole life or $1.2 million of twenty-year term, and you have two children under ten, the term policy is what protects your family. Permanent coverage earns its place later, in estate planning and business succession.

Then shop it properly

Life insurance pricing varies more between carriers than most people expect, because each company grades health differently. A build or blood pressure reading that lands you in a preferred class at one carrier can drop you a tier at another, and a tier is real money over twenty years.

That is the entire argument for running it through an independent agency. Same application, one medical history, multiple carriers competing for it.