Deciding exactly how much life insurance to buy depends on so many factors. However, calculating the right amount ensures that your family will be taken care of when you’re gone.

As we get older, building both families and careers along the way, our financial obligations grow. That is what makes buying life insurance such a personal process, and one that is ever-changing. So, how do you decide exactly how much coverage you need at any given time?

Let’s take a look at why you absolutely need life insurance, and how to calculate the right policy for your loved ones.

Calculating How Much You Need

The reason it’s so tricky to buy the perfect amount of life insurance coverage is that there are so many variables at play. Do you have children? Do you own your home? Will your spouse be left with debts? There’s no one easy, general answer.

Luckily, there are a few factors in your life that make finding the right number a bit easier.

How Much You Make

The first factor for calculating life insurance coverage is your pay. In fact, one of the most common rules of thumb is to buy a policy worth at least 10 times your annual salary – and it’s a great starting point.

Be sure to include other aspects of your income in the calculation, aside from just your base pay. These include benefits like bonuses, commissions, and reimbursements. If you currently have a side hustle that brings in extra money each month, you may also want to throw that number into the mix.

Of course, the multiple of 10 is a common suggestion. But what if your children are very young, or you simply want to provide for your family for longer? In that case, you could multiply your income by 15, 20, or even more, allowing your loved ones financial security for additional years.

The Impact of Your Absence

Think about the ways that your family’s dynamics would be forced to change if you were to pass away. This is especially true if you have children.

If you are a stay-at-home or work-from-home parent, for example, you should factor in the added expenses of child care that your spouse would need in your absence. Even if you’re currently a dual-income household, you may also want to calculate the cost of housekeeping, grocery delivery, or added childcare services for your spouse, were they to unexpectedly become a single parent.

What You Owe

A large part of your life insurance “sweet spot” should account for your current debt. While some of these would be forgiven in the case of your death, others would instead fall on the shoulders of your spouse.

If you have student loans, these may or may not be forgiven. For example, federal loans are automatically cancelled if you pass away. It’s the same with Parent PLUS loans (though there may be some tax consequences from the forgiven debt).

Private loans, though, are a different story. Depending on the loan and whether you had a cosigner, lenders might come after your estate to satisfy the debt. In this case, you may want to include the amount still owed in your coverage calculations.

If you own a home, it’s important to account for the mortgage balance when determining your life insurance coverage. If you own the home with your spouse, they will still be responsible for the monthly payment, as well as property taxes, homeowner’s insurance, and basic home expenses. Ensure that your insurance payout will provide them with enough funds to cover these costs for a certain period of time. You may even want to ease their burden further by buying enough life insurance that they can just pay off the note altogether.

Lastly, if you have credit card debt, you should include this in your calculation. If the debt is yours alone, it’s considered unsecured – this means that the company won’t hunt down your loved ones if your estate can’t pay off the debt. However, if your spouse is a joint account holder on the debt, they are now solely responsible for paying it off.

Education for Kids

If you have children, you may decide to include the cost of their education in your life insurance coverage. This might include private school, summer camps, and college expenses.

Of course, you may already have a 529 account or other education savings plan in place for your children. Including additional funds in your life insurance policy, though, takes the burden continuing to save off of your spouse.

Today, the average public college tuition for four years – including books, room, and board – equates to somewhere between $80,000 to $100,000 per child. Calculate how much is already set aside for your children’s educations, subtract what you’ve already saved, and then adjust this number accordingly.

If the Family Needs Health Insurance

We all know that health insurance premiums have gone up in recent years, and show no signs of slowing anytime soon. That’s why you may want to include the cost of annual premiums for your loved ones in your insurance policy. This is especially true if your job currently provides health coverage for your family, as your spouse would need to find a new plan (with a potentially higher cost) after your death.

If your spouse has a comparable health insurance plan available to them through their employer – and plans to continue working even if something happened to you – this may not be as big of a concern. However, if they would need to find coverage through a private plan, you’ll need to shop around and determine the financial impact this would have. Premiums are not insignificant costs (a family of three can easily top $1,000 a month) and it’s worth crunching the numbers here.

End of Life Expenses

Your passing will bring with it more than just sadness for your family; it will also involve some inevitable, end-of-life expenses. These costs – for things like a viewing, funeral, and a burial or cremation – can run anywhere from $7,500 to $10,000 on average.

If you don’t want your family to worry about thousands of dollars in (likely unexpected) expenses, you should add these costs to your life insurance coverage amount.

Your Current Assets

Now, it’s time to look at your existing assets. These could include savings accounts, investment portfolios, college savings vehicles, life insurance policies through your employer, and more.

If your spouse will be able to collect survivors benefits through Social Security (either at age 60, or right away if you have children under 16 or one with a disability), you may want to account for that added income, as well.

The Magical Number

Okay, so you’ve added up all the things that you want to provide for your family in your absence: compensation for your lost salary, mortgage coverage, and even education expenses, among others. You have subtracted the savings you already have, equity in your home, and even a workplace life insurance policy from which your family can draw. Great.

At the end of the day, though, even this is truly just an educated guess. As with most finance-related questions, the answer to how much life insurance you really need is: It depends.

You don’t want to purchase an extremely inflated policy, wasting money over the years for coverage that you really didn’t need. However, you also don’t want to pinch pennies and leave your family struggling down the line. It’s better to err on the side of caution here and buy a bit more coverage than you need, rather than less, and ensure that your family is protected.

Once you’ve laid out all the numbers that are unique to your situation, your finances, and your family’s preferences, sit down with your spouse to talk about exactly what needs to happen. Do they plan to work if you pass away or would they stay home with children? Do you have a special needs child who will need lifelong care, that requires additional consideration? How long is a reasonable amount of time to cover expenses, so that they won’t feel burdened even further by your passing?

Once you have these answers – and a good baseline number, from going through the questions above – it’s time to shop around for the right policy. You can easily get a free consultation from one of LeapLife’s licensed life insurance coaches.

To learn more about the coverage you need, and get it at an affordable price, you can start a quote right here.