Life insurance isn’t just a policy—it’s protection for everything you’ve built. Your income, your home, your business, your family’s future—all of it depends on you showing up tomorrow. Yet most people don’t have enough coverage to replace their income or preserve their legacy if something happens. Some have no coverage at all.
The truth is, dying without life insurance—or without enough—leaves your loved ones exposed. Mortgage payments don’t stop. Business loans still come due. Payroll has to be met, tuition still needs to be paid, and your family still has to live. Without a plan, they’re left to figure it out under the worst possible circumstances, often forced to make painful decisions with limited options.
This isn’t about checking a box. It’s about making sure that everything you’ve worked so hard to build doesn’t vanish if you’re no longer here. It’s about giving your family time to grieve without financial pressure, and giving your business a chance to survive without you. If your life insurance isn’t in place—or isn’t enough—now is the time to fix it.
Two Ways to Calculate Life Insurance Needs: Needs-Based vs. Economic Value
When determining your life insurance needs, there are two primary approaches: the needs-based method and the human life value (or economic value) method. The needs-based method focuses on calculating the specific financial obligations your family would face if you passed away—this includes mortgage payments, living expenses, college tuition, and final expenses. It’s a practical, goal-oriented way to determine coverage, based on what your family would need to maintain their standard of living.
In contrast, the human life value method takes a broader, more long-term view by calculating your future earning potential over your remaining working years. It aims to quantify the economic value you bring to your household or business, factoring in salary growth, retirement savings, and years to retirement. For business owners and high-income earners, this method often results in a higher—but more realistic—coverage recommendation.
While both the needs-based and economic value methods offer valuable insight, they often tell different sides of the same story. One looks at what your family would need to survive financially. The other looks at what they would lose if your earning power disappeared. Together, they highlight a powerful truth: calculating your life insurance needs isn’t just about covering debts or final expenses—it’s about protecting everything your income makes possible, from daily living to long-term dreams.
What Are Your Life Insurance Needs?
Planning must account for both what your family would need immediately and what they’d lose long-term without you. The human life value approach focuses on your economic worth—the income you would have earned over the rest of your working years. It asks: What financial impact would your death have on those who rely on you?
If your income stopped today, what would it take to keep your family and business financially secure tomorrow?
That’s where real life insurance needs begin. Your coverage should replace more than debts—it should replace the economic engine of your household and protect everything your income makes possible.
Think about whether your spouse could:
- Pay the mortgage, utilities, and groceries
- Cover childcare or stay home with the kids
- Handle medical expenses or student loans
- Keep the business running or sell it on their terms
- Fund your children’s education
If you’re a business owner, could your business continue to operate without you? Would your employees know what to do? Would your family have the resources to make smart decisions—or would they be forced to sell quickly, dip into retirement savings, or take on new debt?
Most people are dangerously underinsured, especially business owners. Experts recommend coverage that’s at least 10 to 15 times your income. Yet the majority of households carry less than half that amount.
If you haven’t crunched the numbers, or you’re relying on an old term policy or group coverage from work, you could be leaving a massive gap—a gap your family might have to pay for.
This isn’t just about having insurance—it’s about having the right kind, in the right amount, for the life you’re actually living.
How to Calculate Life Insurance Needs
Calculating your life insurance needs isn’t about guessing—it’s about creating a financial safety net. You’re building a buffer that replaces your income and covers the obligations your loved ones will still face.
Here’s a simple breakdown to help you get clear on your actual needs:
Start with the cost of life without you:
- Income replacement: Multiply your annual income by the number of years your family would need support
- Debt payoff: Mortgage, business loans, credit cards, personal loans
- Living expenses: Day-to-day needs like food, utilities, transportation, medical care
- Education: College tuition, private school, or vocational training
- Final expenses: Funeral costs, estate settlement, legal fees
- Business-related risks: Personal guarantees, transition costs, lost revenue
Then subtract what’s already in place:
- Personal savings and investments
- Retirement accounts (IRA, 401k)
- Existing life insurance (term or permanent)
What remains is your insurance gap—the difference between what your family will need and what they’ll actually have.
Here’s where many people go wrong: they rely on one-size-fits-all formulas or outdated policies that haven’t been reviewed in years. The cost of inaction is massive—not just in dollars, but in the stress and decisions your family would have to face alone.
Wouldn’t it be better to lock in affordable protection while you’re healthy, and take control of your family’s financial future?
Term vs. Permanent: Why It Matters
Term life insurance can be a solid place to start. It’s affordable and provides temporary protection. However, it doesn’t last forever—and it doesn’t build value.
Even if term insurance is all you can afford right now, it’s a starting point. The key is not to stop there. The goal is to eventually transition permanent life insurance to that can build cash value, provide tax-free income in retirement, and serve as a flexible financial tool for decades.
Permanent life insurance, on the other hand, offers lifelong coverage. It builds cash value, grows tax-free, and can even be used:
- As an emergency reserve
- To supplement retirement income
- To fund a buy-sell agreement or succession plan
It’s not just protection—it’s a long-term financial strategy. And since not all policies are created equal and not all companies price fairly, it’s critical to work with someone who can shop the entire market and find a policy that fits your goals.
Retirement Plans Don’t Replace Life Insurance
Do you have a 401k, IRA or retirement plan in place? That’s good if you do. Just don’t assume that your retirement plan also covers your family if something happens to you.
Your retirement account is designed for long-term accumulation. It doesn’t help your family if you pass away suddenly. It won’t pay off your mortgage, cover payroll, or keep your business open.
Life insurance fills that gap. It creates immediate liquidity and protection your retirement can’t. If you’ve ever dealt with companies that hold 401ks or retirement plans, like I have, moving that money is a real headache. It could be weeks or months before you have access to it. Not only does the lack of liquidity play a major factor, but so do taxes. I know that’s probably not going to be a major concern at a time of loss, but you can avoid a major tax disaster for your loved one by using life insurance.
When used together, permanent life insurance and retirement accounts can balance your strategy. Permanent life insurance can not only protect your family, it can protect your retirement savings. It can be used to grow tax free income, accessed during market downturns, protect you from sequence of returns risk, increase your tax efficiency, and lower your tax rates.
Most People Are Underinsured—Are You?
If it’s been more than two years since you reviewed your life insurance, it’s time. Rates change. Policies evolve. Chances are, your life has changed too. You should always make sure to reassess your needs and financial plans around major life events.
Ask yourself:
- Has your income gone up?
- Do you have more employees or liabilities?
- Has your family grown?
- Are you relying on a policy that expires in 5, 10, or 15 years
- Are you over paying for your policy?
What happens if that coverage runs out before you’re financially independent?
Next Step: Find Out What You Really Need
You don’t have to guess. You can run the numbers in minutes using this tool:
👉 Calculate your life insurance needs using this calculator
Once you’ve got a number, let’s talk. We’ll help you review your coverage, compare options, and build a plan that fits.
Whether it’s upgrading from term to permanent, increasing your death benefit or retirement income, or just making sure your policy still reflects your life—we’ll make it easy.
Schedule a Financial Review Today
Life insurance is just one piece of the puzzle. A smart financial strategy looks at the whole picture.
Let’s not only review your current life insurance—but also your retirement plan, tax efficiency, asset protection, liquidity, risk exposure, and debt management. We’ll help you connect all the pieces and build a financial plan that fits your family’s needs, your goals, and your lifestyle.
The result? Confidence, clarity, and protection that grows with you. Contact us today to set up a private financial review.