How much life insurance a family really needs, worked out on one sheet of paper

Add up what would have to be paid, then subtract what you already have

Your family needs enough life insurance to pay off the debts that would otherwise fall on the survivors, replace the income they would lose for as many years as they would depend on it, and cover the big costs ahead, such as the children's care and education, minus the coverage and savings you already have. The Texas Department of Insurance frames it the same way: weigh your debts, the income your family must replace and the bills they will still have. Do the math for each parent separately, including a parent who stays home.

That sentence is the whole method. The rest of this guide is how to fill in the numbers honestly, because the families I see underinsured did not make a math error. They skipped a line, usually the one that felt uncomfortable to think about.

Start with what the family owes

Write down every debt and its balance. The mortgage is usually the largest, and for many young families in Dallas it is the main reason they start thinking about coverage at all. Add car loans, student loans that would not be discharged, credit cards and any personal loans. If you have co-signed anything, include it.

Then decide which of those debts you would want paid off immediately. Many parents want the house paid in full so the surviving spouse and the children can stay put without a mortgage payment. Others would rather have the money invested and keep paying the mortgage. Either is reasonable; the point is to choose on purpose. If you are about to buy, it helps to plan coverage alongside the loan itself, and the steps from unsure to approved are covered in what qualifying for a first home involves.

• Mortgage balance and any home equity loan
• Car loans and leases
• Credit card balances
• Student loans and personal loans
• Anything you have co-signed

How many years of income would they need?

This is the line that does the most work. Take the take-home pay the family would lose and ask how many years the household would need it. A common anchor is the number of years until the youngest child is self-supporting, but think about your own family. A surviving spouse who would return to work quickly needs fewer years covered than one who would stay home with small children.

Do not forget the benefits that disappear with a paycheck. If one parent's job provides the family's health insurance or retirement contributions, the survivors would have to replace those as well. I would rather have a family see a larger number and scale it back deliberately than start with a small number that ignores half of what the paycheck actually pays for.

Remember also that a lump sum has to last. A death benefit that is meant to replace income for many years will usually be invested or drawn down gradually, and prices tend to rise over that time. That is one more reason to lean toward the realistic end of the range rather than the hopeful end, and to talk through how the money would actually be used with a licensed professional.

Costs coming down the road

Next, list the large expenses the family expects in the years ahead. Childcare is the one parents underestimate most often, especially if the surviving parent would need to keep working full time. College or technical school is another, if you plan to help pay for it. Add final expenses and a cushion for the months after a death, when bills keep arriving and decisions take time.

You do not need perfect numbers. You need reasonable ones written down, so the conversation moves from a feeling to a figure. If saving for college is already part of your plan, I explain the Texas options in saving for college as a Texas family, and the life insurance number should take into account whatever you have already set aside.

Think also about the things a paycheck quietly funds that are easy to overlook: health insurance premiums if coverage came through the job that would end, the car that will need replacing, the home repairs that never stop. These are not reasons to inflate the number, only reasons to make sure nothing important is missing from it.

The worksheet, line by line

Here is the sheet I use with families, simplified so you can copy it onto a single page. Fill it in once for each adult. Where you are unsure, write your best estimate and circle it, so you remember to check it later.

• Debts you would want paid off right away, including the mortgage if you choose
• Yearly take-home income the family would lose, times the years they would need it
• Benefits that would disappear with the job, such as health coverage
• Childcare and household help until the youngest child no longer needs it
• Education costs you plan to help with
• Final expenses and a cushion for the first months
• Minus: existing life insurance you are confident will stay in force
• Minus: savings and investments the family could use without touching retirement

Subtract what is already in place

Now take credit for what you already have. That includes coverage through work, any individual policy, savings and investments the family could use, and other resources you are confident would be there. Be careful with two of these. Group life insurance is real coverage, but the Texas Department of Insurance notes that it typically ends when you leave your job, so do not count on it for decades if your career could change. Retirement accounts are also usually better left for retirement rather than counted as a resource for young children.

What remains after the subtraction is the gap. That gap, not a round number from an ad, is the amount of coverage to price. Once you know it, the cost side becomes much easier to judge, and I explain what moves the premium in what a term life policy costs.

The parent who stays home needs a number too

Families often insure the paycheck and forget the person who makes the paycheck possible. If a stay-at-home parent died, the surviving spouse would need to pay for childcare, school pickups, meals, cleaning and many other things that currently cost nothing in dollars. Many working parents would also need to cut back hours for a time, which reduces income exactly when costs rise.

Work out what replacing that care would realistically cost in your household and for how many years. You may find the number surprisingly large. Coverage on a non-earning parent is usually less than on the primary earner, but it should not be zero. I make a point of running the worksheet for both adults in every family I meet.

The same logic applies to a parent who works part time or runs a small business from home. Their income may be modest on paper, but the flexibility they provide often holds the family's schedule together. Count both the paycheck and the care.

Choosing how long the coverage should last

The amount is half the decision; the term is the other half. Term life insurance covers a set number of years, and the Texas Department of Insurance notes that the premium stays the same for the entire term. Match the term to the longest obligation you are protecting, such as the years left on the mortgage or the years until the youngest child is on their own.

Some families layer two policies: a larger one for the years when the children are small and the mortgage is high, and a smaller, shorter one that ends sooner. That approach can match coverage to need more closely than one large policy. Whether it makes sense depends on your numbers and budget, which is a conversation to have with a licensed life insurance representative. If you worry about paying for years and never using it, read whether term coverage is wasted if you outlive it.

Where the arithmetic usually goes wrong

In my experience, families underinsure for a handful of predictable reasons, and none of them involve bad intentions. Most of them come from looking at one number in isolation instead of the whole household.

The fix for all of them is the same: put every line on paper for both adults, subtract only what you are confident will be there, and revisit the sheet when life changes. It is an evening of work that protects years of plans.

• Counting group coverage at work as if it will last for decades
• Sizing coverage to the mortgage alone and leaving no income replacement
• Forgetting childcare and the cost of a parent who stays home
• Covering one spouse and not the other
• Never updating the amount after a second child, a bigger house or a raise
• Picking a round number because it felt like enough

Putting the number to work

Once you have a gap figure for each parent, you have the most important input for buying coverage. Bring it, along with your debts, income, children's ages and current coverage, to a meeting with a licensed life insurance representative. I place term life coverage underwritten by Primerica Life Insurance Company and walk through the worksheet with each family so the amount and term make sense before any application is completed. That fits inside the broader sequence I use, laid out in putting protection and savings in order.

The number will change as your family does. A new baby, a move, a divorce or a big change in income all deserve a fresh look, along with a check of who is named as beneficiary. Most of the families I work with are in the Dallas–Fort Worth area, and a first review carries no obligation; you will leave with your own number either way.

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