How much life insurance do I need?

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When families sit down to explore life insurance options, they frequently ask the same two questions: How much life insurance do I need, and what type of life insurance should I shop for?

Just like other important decisions that families need to make, the answers to these questions aren’t cut and dry. Where some families need permanent life insurance coverage, others would be better off with affordable term coverage with a larger death benefit.

Likewise, the amount of coverage that one needs varies, depending on where you are in your career, how much you earn and the types of debts and financial obligations you have. So before you buy life insurance, you’ll want to consider exactly what you’ll get from a life insurance policy, and how much it’ll cost.

When a life insurance policy is in force on an individual who passes away, the beneficiaries of the policy receive a death benefit in the form of a cash payout. Life insurance proceeds are typically used to cover:

• Income replacement during the insured’s working years
• Mortgage loans, car loans and other debts
• Utility bills, groceries and other basic living expenses
• The cost of childcare or household help
• Final expenses like a funeral, casket and burial plot (or the cost of cremation)
• Future expenses like college tuition and children’s activities

At its core, life insurance is meant to provide your dependents with financial support in the event of your untimely death. Ultimately, this means your beneficiaries can spend the proceeds wherever they need, whether that means using the money for living expenses, or covering the cost of future milestone events like college tuition or weddings.

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The cost of life insurance can vary dramatically based on a wide range of factors. These include:

• Your age
• Overall health
• Family health history
• Occupation
• Hobbies
• Gender
• State of residence
• Amount of coverage
• Type of life insurance purchased
• Tobacco status

Generally speaking, term life insurance is the most affordable type of life insurance. This is because, unlike permanent life insurance coverage, term policies are only good for a specific amount of time, usually 10 to 30 years starting from when you buy the policy.

Term life insurance can even be downright “cheap” for the amount of coverage you can buy. For example, a 30-year old man in excellent health living in California could use a company like Bestow to purchase 20 years of term life insurance worth $500,000 at a cost of less than $25 per month, whereas a woman in excellent health at the same age could buy this coverage for less than $17 per month.

Prices go up from there for permanent life insurance — way up. Whole life insurance coverage can cost as much as 10 to 20 times more than term life for the same amount of coverage. That means you could pay $400 or more per month for a whole life policy worth up to $500,000.

However, with whole life insurance, your family will receive the death benefit of your policy no matter how long you live, unlike term life insurance that only lasts for a set period of time. And whole life insurance policies also build cash value over time that you can borrow against, and that cash value increases over time as you pay your premiums.

As you shop for life insurance, keep in mind that you’ll have access to a policy with better rates if you lock in coverage while you’re young and healthy. Prices only go up as you get older, and that’s especially true if you end up with a chronic health condition or endure other physical problems that could make it challenging to pass a medical exam.

If you wait to buy coverage until you’re older or in poor health, you may wind up having to purchase guaranteed life insurance — a type of coverage that’s expensive despite offering a relatively low death benefit.

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According to financial advisor Jeff Rose, who writes about life insurance and investments for his website Good Financial Cents, most families should strive to have at least 10 times their income in life insurance coverage.

However, that’s a “minimum” to shoot for, he says, adding that 20 times your income is more in line with the amount of coverage people should carry. “This is especially true for younger families whose income is expected to increase as their career advances,” he says.

Based on Rose’s advice, if you’re an individual who’s currently earning $40,000 per year, you should strive to buy life insurance coverage with a death benefit of at least $400,000, but ideally up to $800,000 or more.

And, if you earn $70,000 per year? That means you need $700,000 to $1.4 million in life insurance coverage. Conversely, high-earners who bring in $150,000 per year may need as much as $1.5 million to $3 million in life insurance.

While 10x to 20x your income is a general rule of thumb, you may want to buy even more coverage depending on your lifestyle and your needs. Individuals who have a lot of debt may want to shoot for a higher death benefit, as will those who have multiple children.

And if you believe you’ll earn considerably more money in the future, that’s another reason to buy more coverage than you need right now. After all, you can get lower rates for coverage if you’re young and healthy, whereas you’ll have to pay higher monthly premiums the longer you wait.

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If you feel like you don’t need life insurance coverage, then you could be right. You may want to skip coverage for now if you’re young and don’t have any dependents or debts. Individuals who are wealthy can also decide to self-insure, and it’s possible you don’t need life insurance if you’re already retired and have cash set aside for your final expenses.

Then again, buying life insurance coverage to pay for a funeral or burial could provide your family with peace of mind no matter your age. Or, you could always take the initiative to lock in affordable life insurance rates now so you’ll have it once you need it later on.

At the end of the day, you can spend a little — or a lot — on life insurance that can replace your income and help your loved ones avoid financial losses in the event of your death. But don’t get so caught up in how much life insurance you need that you never invest in a policy. Any amount of life insurance is better than nothing, and the best policy is one you can afford.

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Read CNN Underscored’s guide to the different types of life insurance.

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