Mind the Gap

Here’s how to make sure you have enough life insurance coverage.

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By Kristin Baird Rattini, illustration by Davide Bonazzi

You have life insurance because you want to protect your family, to provide some stability and enable them to maintain their current standard of living. But do you have enough coverage to provide that safety net if you die prematurely?

It’s possible you don’t. According to the LIMRA 2016 Trends in Life Insurance Ownership study, 70 percent of American households have a life insurance contract, yet nearly half of those households have what’s considered a coverage gap of $200,000. In short, their safety net isn’t large enough to cover all of their financial obligations and keep their families financially secure.

So how much coverage should you have? It depends on your circumstances. Here’s how you can figure it out.

Calculate the costs

"A lot of people think, ‘I know I should have some life insurance,’ but they have no rhyme or reason behind the amount of coverage,” says Drew Constanzer, a Thrivent Financial professional in Bellevue, Washington.

In general, three categories factor into determining how much coverage you need.

  1. Final expenses. Include what costs will be for a burial or cremation – typically around $5,000 to $10,000 – plus any medical expenses incurred at the end of life.1
  2. Existing debts. Add up your existing debts:
    • If you own a home, how much remains on your mortgage?
    • Do you have a home equity loan?
    • Do you owe on your car?
    • How much credit card debt do you have?
    • Do you have student loans? (Federal student loans are forgiven upon the borrower’s death, but some private lenders do not forgive the loans after the borrower dies.)
  3. Income replacement. Income replacement tends to be the largest and most important factor driving life insurance coverage. You often hear that life insurance should cover seven to 10 times your annual salary, Constanzer says.

But while that’s a good starting point, there are additional factors to consider when figuring out income replacement, says Todd Yeiter, Thrivent’s director of product and advice consulting. “The actual number depends on where a person is in their life and career and what lifestyle they want their family to be able to have,” Yeiter says.

You’ll need to define, and put a value on, what your income now provides for your family. You’ll also need to decide how many years you want your life insurance payout to provide income for your family. In determining this number, consider the following:


  • Living expenses: “Start by adding up your regular monthly living expenses: groceries, insurance, cellphone, etc.,” Constanzer says. “Those will probably not change much.”
  • Benefits: Consider the benefits your employer currently provides. Does it offer health, dental or vision insurance, for example? If you currently buy these types of insurance through work, your family will need to purchase them on the open market, perhaps at greater expense.
  • College costs: Are you setting money aside for college tuition? Calculate the amount needed to cover those future school bills.
  • Retirement: How much are you and your employer currently contributing toward retirement? Your life insurance contract will need to replace those contributions for the number of years remaining until you would reach retirement.

Add together the amounts you calculate for final expenses, existing debt and income replacement. That number gives you a much more accurate idea of how much coverage you may need today. Then talk to your financial professional for life insurance options.

Assess coverage throughout your life

These calculations are crucial not just for younger families but for retirees as well. “After a spouse dies, a significant chunk of your Social Security or pension income could be lost, but your expenses might stay the same, and you could pay higher federal income taxes using rates for a single taxpayer,” Constanzer says. “Life insurance can help cover that gap.”

The reasons you own life insurance—and the factors that influence your contract amount—will change over time. But the need for life insurance never goes away. So it’s important to reassess your coverage from time to time.

“As long as you start the conversation about coverage with the question, ‘What do you want for your family?’” Yeiter says, “then you’ll reach a meaningful solution.”

St. Louis-based freelance writer Kristin Baird Rattini has written about consumer finance for national publications for two decades.