In order to truly receive the benefit of these special dollars, you should own an amount of life insurance that is appropriate to cover your human life value.

After 9/11, the federal government determined that the average person who died in the attack on the World Trade Towers had a human life value equal to 15 times their annual earnings.  Are you insured for 15 or 20 times your annual income?  If not, why not?  If someone offered to pay you in cash the amount you have your life insured for and said you would now work for them for the rest of your life with no additional income, would you take the offer?

Think Big

This is your life.  Die in an unforeseen accident caused by someone else and what do you think your family attorney will claim your life is worth?  Millions and millions of dollars!  How much do you have your life insured for?  Here is the reason why – life insurance is not free.  It costs money!

Purchase more coverage than you think you’ll need.  Remember, your income likely will rise over the years, and so will your expenses.  Another factor to consider is inflation.  While you can’t anticipate exactly how much you will need, a cushion helps make sure your spouse and children can maintain their lifestyle.


Perhaps the biggest deterrent to maintaining enough life insurance is that people quantify it as a large lump sum, which it should be, and — if invested wisely — should produce sufficient income to maintain the families lifestyle to which they are accustomed.  But a consumer’s calculated need for $2 million or more to replace income is sometimes met with do they really need that much?  Therefore most people don’t have enough.  

Think of it this way.  You own a money machine which legally creates $100,000 a year to age 65, how much would you insure it for?  Now if you were 35 years old, earning $100,000 a year, how much would you insure it for to age 65?

You should also consider if your income grows by 3 to 5 percent over the same period of time, how much more it increases your Human Life Value in economic terms to your loved ones?  You may not need to insure all of that, but you should probably consider a significant amount of that number.

Whatever your number, it should be large enough to allow your loved ones to continue their lifestyle now while providing mortgage payments,  college, weddings, etc. – and money to invest for their future going forward.

Here are Some Basics for Life Insurance Income Replacement

Rule of Thumb #1

Rule Of Thumb


four areas that you should
consider when calculating your life insurance
needs for income replacement.

One Dime Coin

DEBT:  Add up your debts, other than your mortgage, plus an estimate of your funeral expenses.  These are your final expenses.

INCOME:  Decide for how many years your family needs your financial support, and multiply your annual earned income by that number.
The multiplier might be the number of years before your youngest child graduates from college.  

MORTGAGE:  Calculate the amount you need to continue making mortgage payments or pay off the mortgage.  

EDUCATION:  Estimate the cost of sending your kids to college.

The DIME formula doesn’t account for savings and other investments you already have, and it doesn’t consider the unpaid contributions
a stay at­ home parent makes if it applies to your personal situation.

Rule of Thumb #2

Rule Of Thumb

Here are general income replacement insurance company guidelines by age.  The income factor table is a guide to help determine the maximum amount of life insurance that is usually acceptable in relation to your earned income.  Income replacement is one of the fundamental needs for life insurance as it replaces lost income upon the death of the insured.

Prior to age 40 — 35 x your earned income
Between 41 and 50 — 25 x your earned income
Between 51 and 60 — 20 x your earned income
Between 61 and 70 — 10 x your earned income
Between 71 and 80 — 5 x your earned income

Rule of Thumb #3

Do both spouses work?  Is your lifestyle based on both of your incomes?  Both of you should be insured.

Does one parent stay at home to watch a child or children?  Both should be insured.  That’s because the value provided by the stay at home parent needs to be replaced if he or she dies as the surviving spouse would have to pay someone for childcare that the stay at home parent does for free now.

Rule Of Thumb

Rule of Thumb #4

Rule Of Thumb

Experience has shown me.   Everything revolves around a premium you can budget.

Keep these ideas in mind as you calculate your income replacement life insurance needs.

Talk these numbers through with your spouse.  How much money does your spouse think the family would need to carry on without you?  Do your estimates make sense to both of you?  For example, would your family need to replace your full income or just a portion, and how long will you want to replace your income for?


Marc Maretsky Personal Insurance Services based in Beverly Hills, serves all of California and the United States.  I help my clients acquire life, disability, long-term care, and critical illness insured solutions, as well as enroll them into Medicare when eligible.

“No matter how fast technology changes our world and everything around us.  I believe the personal touch and a human voice are more important than ever.”

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