How Much Life Insurance Should You Carry?

How Much Life Insurance Should You Carry?

Average permanent vs. term life insurance rates

There are two main types of life insurance: permanent life insurance (which includes whole, universal, and variable life insurance) and term life insurance. Each type grows and pays out differently, and have very different costs associated with them. Here are the differences between each type, along with the average cost according to data from S&P Global: 

Whole life insurance

  • Average cost per month: $52 

Whole life insurance is a permanent policy that will remain in place and pay out when you die, no matter when that is. This type of policy is guaranteed to pay out eventually, and premiums will always stay the same. It’s typically used to leave inheritances, but it can be pricey. 

Universal life insurance

  • Average cost per month: $55

This type of permanent life insurance is more flexible than whole life insurance. It allows you to change the benefit amount and monthly payment to fit your needs over time. And, like whole life, it’s guaranteed to pay out and has cash value.

Variable life insurance

  • Average cost per month: $40 

Like universal and whole life insurance, this type of permanent life insurance also offers cash value. But, this insurance is invested in the stock market, so it’s slightly more risky than the other types of permanent life insurance.

Term life insurance 

  • Average cost per month: $53 

The cheaper option that’s usually recommended for young parents who just want to pay the bills for their family should they die (not use this product to borrow against or leave an inheritance), this life insurance provides enough coverage for a given timeframe, generally between 10 and 30 years. After the years are up, the policy expires. 

Frequently asked questions about how much life insurance you need

What percentage of your income should you spend on life insurance? 

As a percentage of income a common rule of thumb is at least 6% of your gross income plus 1% for each dependent.

How much life insurance should a stay-at-home parent get? 

A stay-at-home parent should get enough life insurance to cover the costs incurred by the family if anything should happen to them. For example, the surviving parent may have to hire someone to take care of the home or watch any children.

What are the benefits of life insurance for women? 

There’s reason to believe women may need more life insurance than men, not less. Women are earning more than ever before and 41% of mothers are the sole or primary breadwinners for their families.1 And on average, women life 6-8 years longer than men2, yet they typically buy less life insurance coverage and save less for retirement than their male counterparts.


Term life insurance rates by policy length

Examining quotes for 10- and 20-year term life policies, the shorter the term length of a life insurance policy, the cheaper the life insurance premiums you will have to pay each year.

We have broken down the premiums by what is called rating class. A rating classification is the health rating that the life insurance company assigns to you after you have taken a medical exam. The rating you receive directly affects the rate you pay for your life insurance policy. These metrics are determined by each individual life insurance provider, but only vary slightly across the industry. Health indicators such as blood pressure, smoking and cholesterol levels impact your rating classification.

10-year term life insurance rates

People who are on a tight budget may prefer 10-year policies because they offer some of the cheapest rates available. Furthermore, a 10-year policy can be useful for someone who may not require long-term insurance.

Policy face value Preferred plus Preferred Standard $100K$16$19$22$250K$23$28$37$500K$35$44$61$1M$59$76$110 Compare rates

20-year term life insurance rates

The most popular term life insurance option on the market, the 20-year term policy, provides longer coverage than its shorter 10-year counterpart, though it comes with higher annual rates.

These policies are usually recommended for young families who often have large debts and expenses, such as mortgages and school loans, that would be harder to pay without one parent’s income.

The 20-year term is typically long enough for the family to substantially pay down these debts and reduce the potential risk of someone else having to foot the bill should something happen.

Policy face value Preferred plus Preferred Standard $100K$17$19$23$250K$25$30$38$500K$40$49$65$1M$69$86$117 Compare rates

Should You Use Life Insurance as an Investment?

It’s possible to consider life insurance to be an investment if you have a policy that builds cash value. Cash value policies are generally touted as another way to save or invest money for retirement. These policies help you build up a pool of capital that gains interest. This interest accrues because the insurance company is investing that money for its own benefit, much like banks. In turn, they pay you a percentage for the use of your money.

But it’s important to consider the rate of return that you might earn. If you take the money from the forced savings program and invest it in an index fund, for example, you may realize better returns. For people who lack the discipline to invest regularly, a cash value insurance policy may be beneficial. A disciplined investor, on the other hand, could generate higher returns by putting the money they would pay toward premiums in the market.

Important If you’re considering using a life insurance policy as an investment, check the rate of return and risk profile of the underlying investments to ensure that they align with your financial goals.

Average Term Life Insurance Rates by Payout Amount

Knowing how much life insurance you need is essential. As the amount of the death benefit rises, so will your costs. We analyzed average annual rates for a 30-year-old at varying term lengths for policy payouts from $100,000 up to $3 million.

What Happens to My Life Insurance if I Lose My Job?

If you lose your job and have private life insurance that you purchased on your own, so long as you continue paying your premiums, you will have coverage. If the insurance was provided as a group plan through your employer, you will typically lose that coverage after one month after being terminated.

Average cost of life insurance by gender

Besides age, life insurance quotes vary depending on your gender. On average, men pay 23% more for term life insurance than women.

This is because men tend to have shorter life expectancies compared to women. Life insurers take this into account and charge men more expensive rates than a woman who is the same age.

Age Policy face value Male premium Female premium 30$250K$21$18$500K$33$28$1M$58$4940$250K$30$25$500K$50$41$1M$93$7650$250K$67$52$500K$118$92$1M$226$173 Monthly premiums are for a life insurance policy with a term length of 20 years.

Average life insurance cost by age

Life insurance changes depending on your age. The price you’ll pay each month for coverage generally increases with each passing year. 

Business Insider obtained quotes from four large insurance companies for people seeking $250,000 worth of term life coverage for a 30-year term, both in excellent health. The average of these four quotes is listed below for each age range:

AgeAverage female quoteAverage male quote

The most noticeable difference is in the older ages of the sample premiums — after age 40, premiums go up significantly. The sooner you get your coverage, the less you could pay each month. Waiting for life insurance coverage won’t make it any cheaper, as the data above shows. 

General rules of thumb for determining how much life insurance you need

While you don’t know the future and you can’t foresee every possible expense your family might face in your absence, there are a few straightforward ways to start estimating your number:

1. Human Life Value*

Some financial representatives calculate the amount you need using the Human Life Value philosophy, which is your lifetime income potential: what you’re earning now, and what you expect to earn in the future.

In its simplest form, the philosophy suggests that you multiply your income by a variable based on factors such as age, occupation, projected working years, and current benefits. As with every individual, the amount of recommended insurance you purchase depends on many factors. A simple way to get that number, however, is to multiply your salary times 30 if you are between the ages of 18 and 40. The calculation changes based on your age group, so please refer to the chart:


Maximum Life Insurance


30 times income


20 times income


15 times income


10 times income


1 times net worth


1/2 times net worth


case by case

2. Multiply your income by 10 – and add college for each child

This approach is almost as easy to figure out as the first rule, but also helps plan for opportunities like college for your children. How much should you add for each child? College isn’t cheap: you should account for somewhere between $100,000 and $150,000 per child. If you split the difference – and have 2 kids – that’s an extra $250,000.

3. Use the DIME formula

DIME stands for Debt, Income, Mortgage, and Education – the four big factors to consider when making a more detailed estimate of your life insurance needs:

Debt: Total all your debts other than your mortgage. Car payments, credit cards, student loans – even personal obligations such as money you may have borrowed from a sibling to put a down payment on your house. On top of all that, add about $7,000 for funeral expenses.

Income: How much do you make a year? And how many years will your family need that money? It’s a hard question to answer, but a good place to start is determining how many years until your youngest child graduates high school. For example, if you make $50,000 and have nine years until your youngest graduates high school, put down $450,000 for income.

Mortgage: Look at your last statement and get the pay off amount. If you have a second mortgage or HELOC (Home Equity Line of Credit) add that in as well (if you haven’t already included it in the debt section above).

Education: The anticipated cost for sending each of your children to college. As we said before, figure between $100,000 and $150,000 per child.

Add those four factors all up and that’s your number. You can also make adjustments (i.e., subtract) for any current savings and life insurance you already carry. The DIME method takes a little more work, but it’s also more precise – and you can probably get all the numbers you need in an hour or so by going through your files at home.

What’s the right amount of life insurance for me?

You want enough life insurance to pay off your mortgage and any other debts, as well as enough to replace your income for however many years your family would need support. If you have kids, you should also factor in the total cost of their tuition, whether it’s for college or private K-12 school. Finally, calculate your potential funeral expenses to get a rough idea of how much life insurance you need. Then use our life insurance calculator.

Why New York Life?

New York Life has been a mutual company for more than 175 years, delivering on its promises to policyholders. Earning solid grades from all four major ratings agencies, we offer a wide portfolio of products that can help you prepare and protect your financial future—and our agents are among the most knowledgeable in the business. No matter which type of insurance policy you decide on, make sure you fully understand what you are purchasing by meeting with a financial professional or someone else you trust to ensure that the policy meets your goals and gives you the protection you need.


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