How Much Life Insurance Do I Need? A Guide for Families and Business Owners

Protecting the "what-if" when you're not around

You may not love thinking about death. But life insurance isn't really about death—it's about protection for the people you love if you're no longer around to provide.

And if you're in your 20s through 40s, building a business, juggling debt, or shifting from residency to attending—getting the right amount of life insurance matters. Without going overboard.

As the proverb reminds us:

"Wealth gained hastily will dwindle, but whoever gathers little by little will increase it." (Proverbs 13:11)

In the same way, proper planning serves your family better than panic-buying.

Four popular "rules of thumb" (as starting points)

These are education tools, not one-size-fits-all solutions.

10× your income. Multiply your gross annual income by roughly 10 (or 7-10×) as a rough target. This works when you have moderate income, modest obligations, dependents.

10× income + $100K per child (or college cost). Same as above, but adds extra buffer for education or additional dependents. Useful when you expect children and want to cover higher education.

6-8× income or 5× income plus debts/expenses. Some institutions suggest simply 6-8× income or "5× income + mortgage + final expenses + debt." This approach fits when you have smaller needs, fewer dependents, or large savings already.

DIME method (Debt + Income replacement + Mortgage + Education). Add up your debts (other than mortgage if separate), how many years you'll need to replace income, your mortgage balance, cost of future education. Then subtract what you already have. This is the most nuanced approach—helpful when you have variable obligations, business ownership, high debt, or a non-traditional family structure.

Key takeaway: These are starting points. You'll want to adjust for your unique mix of debt, business risk, income, and legacy goals.

Why one size rarely fits all (and how to adjust)

Here are some situations that complicate the rules of thumb.

You have a lot of debt (student loans, business loans, large mortgage). The income multiplier methods may underestimate your need. Consider including the outstanding debt and a final expense buffer (funeral, estate costs). The DIME method helps here by starting with "Debt" explicitly.

You're a high-income earner or business owner. If your income is far above average or irregular—as many entrepreneurs know—you may need higher coverage to replace lost income for many years. Business risk might also mean you want life insurance to protect a partner or fund a buy-sell agreement.

You're in transition (from residency to attending, or just started a small business). Your income may soon rise. Your obligations may change. In this case, buy what you can now (term coverage is usually affordable), and plan to revisit and increase later. Buy today what you can afford, then revisit as you grow.

Term vs permanent ("whole life") coverage. Term gives coverage for a set period—while kids are young, mortgage outstanding. Permanent (whole, universal) gives lifelong coverage plus cash-value buildup, but at much higher cost. Many young families use term for the "bread and butter" coverage and reserve permanent for special legacy or complex planning needs.

You have limited budget. Buy what you can afford—it's better to have something than nothing. Rather than paralysis (waiting for the "perfect number"), pick a defensible number, get coverage, revisit later.

Some practical targets and checks for 20-40 year-olds (and business owners)

Think of these as checks, not mandates.

Calculate your minimum coverage. Add your outstanding non-mortgage debts + mortgage balance (if you want your family to stay in the home) + final expense estimate ($10-25K typical) + estimated education cost (if kids) + income replacement for X years (you pick). From that total, subtract what you already have in savings, existing life coverage, business value.

Then apply a multiplier check. Ask: "Is my coverage at least 7-10× my income?" If not, ask "Why not?"

For small business owners. Make sure business risk is addressed. Is your business key-person dependent on you? Would your family need a payout to buy out your interest? Consider adding a term policy sized to your business risk plus personal risk.

If budget is tight. Prioritize term coverage for the years when your dependents are young, debt is high, and you're "income replacing." Consider a small permanent policy (say $25K-$50K) just to cover final expenses and leave a small legacy, while using term for the bulk.

Review every 5 years (or with major life change). Marriage, kids, business growth or exit, large swings in debt, retirement. Your need will change.

A pastoral reminder (and good stewardship lens)

You're not buying life insurance just because it's "financial advice." You're doing it because you love your family, you want to be a faithful steward of what God's entrusted to you, and you're preparing for the what-if so life can go on for those you care about.

You may read "get as much as you can afford" or "buy the max policy." But stewardship doesn't always mean "go biggest." It means go wisely.

Set yourself up so that if your absence would cause financial chaos for your household, you've done your part. Then take a breath. Focus on what comes next: building income, reducing debt, growing assets, and trusting God's provision.

Good planning doesn't mean you live in fear. It means you live with freedom.

Want some help thinking this through?

I did too. That's part of why I started my financial planning firm—to walk with folks like you through decisions that feel complicated, but don't have to stay that way.

If you've got questions, reach out. I'm a real person, and I won't pressure you into buying products you don't need. You don't have to navigate this alone.

📩 [Email Me] or 📞 [Schedule a Call]

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