Life insurance is important – and worth having before you really need it. If you’re nodding in agreement but also wondering How much life insurance do I need? you’re not alone!

Even though we can’t predict when our time is up, we can control how much of a life insurance payout our loved ones will get when we die. What better way is there to lift those financial worries from your family’s shoulders?

How Much Life Insurance Do I Need?

Let’s get straight to the point: It can be best to get coverage that’s equal to 10-12 times your annual income. And make it a level term life policy that lasts for 15-20 years.

Why 10-12 times your annual income? Because it replaces your salary if you die and gives your family a financial cushion to help them get back on their feet. It gives them some funds to invest, where the interest coming in every year could provide vital income in your absence.

The reason we say 15-20 years is simple: if you have young children, by the time the term life policy is over they’ll be out of college and able to support themselves. The only coverage they’ll need is during those 15-20 years in between – when they’re totally dependent on you.

If you’re following our baby steps you’ll be busy investing your money during those 15-20 years in areas like mutual funds. So by the time your term life insurance plan is over? You’ll be “self-insured” and won’t need life insurance.

What Does Life Insurance Cover?

If you have life insurance coverage equal to 10-12 times your annual income it replaces your income 10-12 times over for your loved ones if you die. It covers the bills, expenses and everything else essential for your dependents to get by on because you’re no longer there.

Keep these tips in mind as you calculate your coverage needs:

• Think of life insurance as part of your overall financial plan. That plan should take into account future expenses, such as college costs, and the future growth of your income or assets.

• Don’t skimp. Your income likely will rise over the years, and so will your expenses. While you can’t anticipate exactly how much either of these will increase, a cushion helps make sure your spouse and kids can maintain their lifestyle.

• Talk the numbers through with your family. How much money does your spouse think the family would need to carry on without you? Do your estimates make sense to them? For example, would your family need to replace your full income or just a portion?

• Consider buying multiple, smaller life insurance policies, instead of one larger policy, to vary your coverage as your needs ebb and flow. For instance, you could buy a 30-year term life insurance policy to cover your spouse until your retirement and a 20-year term policy to cover your children until they graduate from college. Compare life insurance quotes to estimate your costs.