Quick answer
Estimate life insurance needs by adding the expenses and support your survivors would need, then subtracting assets available for those purposes and existing life insurance. Start with the household’s actual financial shortfall—not a salary multiple. Include unpaid caregiving, and estimate how long each need lasts. This worksheet is a planning starting point, not a policy recommendation. The NAIC identifies continuing family support, education, debts and final expenses as key considerations. (content.naic.org)
This article is for U.S. households. Insurance contracts and state laws differ; confirm the terms of your coverage.
1. Identify who would face a financial shortfall
Begin with one question: If you died, who would lose money or services they rely on?
List each person, your contribution and the likely duration:
| Person or household | What you currently provide | How long support may be needed |
|---|---|---|
| Partner | Income toward shared expenses | Until a chosen financial milestone |
| Children | Living expenses, care and education support | Until the planned independence date |
| Parent or other relative | Regular financial help or caregiving | Based on their circumstances |
| Other household member | Contributions toward shared obligations | Until those obligations end |
Dependence is not limited to children or a spouse. The NAIC also asks readers to consider parents, grandparents, siblings and other people who rely on them financially. Its consumer guidance favors examining specific needs over relying on an income multiple. (content.naic.org)
If nobody depends on your income or care, your income-replacement need may be zero. Still examine final expenses, shared obligations and any intended gifts. Not everyone needs life insurance; the Texas Department of Insurance advises evaluating financial dependence, debts and other expenses first. (tdi.texas.gov)
Your first task: write down the people and commitments you want the plan to protect. Do not choose a coverage amount yet.
2. Calculate the annual support gap—not your entire salary
For a first-pass worksheet, use:
Annual support gap = survivors’ annual spending − surviving income and confirmed ongoing benefits
Then multiply a positive gap by the number of years you want to fund it.
Build a proposed survivor budget rather than copying today’s budget unchanged. Ask:
- Which expenses would disappear?
- Which housing and household costs would remain?
- Would the survivor work the same hours?
- Would health coverage or other employment benefits change?
- Would you want to fund a temporary break from work?
- Should ongoing retirement saving remain part of the budget?
Use after-tax income when comparing income with spending. Before subtracting any survivor benefit, confirm eligibility, amount, start date and duration with the relevant administrator. Leave uncertain benefits out of the base calculation and show them as a separate scenario.
Break the estimate into phases when circumstances change. For example, calculate an initial transition period separately from later years when a survivor expects to return to work.
Why salary multiples can mislead: two people with identical salaries can have different dependents, expenses, savings and support periods. A salary-based estimate also gives no useful value to unpaid work.
Label a simple “annual gap × years” calculation clearly: it assumes unchanged spending and no investment return. It does not model inflation, taxes on investment earnings or changing expenses. Treat it as a starting estimate, not a precise forecast.
3. Put unpaid caregiving into the worksheet
A person without paid employment can still leave a financial gap. The NAIC specifically identifies the value of services a person provides, along with day-care costs, as relevant to insurance needs. (content.naic.org)
List the work that would need replacing, such as:
- Childcare and school transport.
- Care for an older relative.
- Meal preparation and household upkeep.
- Appointment coordination.
- Support that enables another adult to maintain paid work.
For each task, ask whether the survivor would buy a service, reduce working hours or receive dependable help from someone else.
Use actual local quotes where possible. Record hours, frequency and duration. Mark an unresearched figure as “estimate to verify,” not as a typical market price.
A useful worksheet row is:
Weekly replacement cost × weeks needed per year × years needed
Avoid double counting. If the survivor budget already includes replacement childcare, do not add that same cost again. If the plan assumes reduced working hours, lower surviving income accordingly rather than assuming both full earnings and unlimited availability for care.
Calculate the consequences of each adult’s death separately. The household may need different amounts of protection for each person.
4. Add one-time costs, debts and education goals carefully
Create a separate list for costs outside the annual support budget:
- Funeral and other final expenses.
- Anticipated estate-administration or professional costs.
- Debts you intend the plan to repay.
- Moving or housing-transition costs.
- Education support not already included elsewhere.
- Other specific commitments.
Distinguish legal obligations from planning choices. Relatives generally do not become personally responsible for someone’s debts merely because that person dies. Exceptions can include co-signed debts, joint accounts and obligations under state law. The estate generally owes debts when no exception applies. Get legal help if responsibility is unclear. (consumerfinance.gov)
For a mortgage, choose a consistent approach:
- Payoff approach: add the planned mortgage payoff as a one-time need, then remove mortgage principal and interest from future spending.
- Payment approach: retain mortgage payments in the survivor budget without adding the full loan balance again.
Under either approach, separately budget ongoing property taxes, insurance and maintenance if the plan assumes keeping the home.
For education, decide what you intend to fund: the full projected cost, a fixed contribution or a limited number of years. Then identify savings already allocated to that goal. Do not count the same education savings again as money available for general household support.
5. Subtract usable assets and verify existing coverage
Now identify resources available to meet the listed needs. The NAIC recommends considering savings and investments as alternatives to insurance and checking existing coverage before buying more. (content.naic.org)
Use three categories:
| Resource category | Worksheet treatment |
|---|---|
| Available for survivor needs | Subtract the amount you deliberately allocate |
| Reserved for another purpose | Do not subtract unless you change that plan |
| Uncertain or difficult to access | Model separately until verified |
Do not automatically subtract your entire net worth. Ask whether the survivor could access each asset, when it would become available and what other purpose it must serve. If the plan assumes keeping the home, do not also assume selling it to fund living expenses.
For existing insurance, obtain the policy or employer certificate and record:
- Insured person and beneficiary.
- Current death benefit.
- Coverage end date.
- Premium obligations.
- Any reduction in benefits over time.
- Outstanding loans or benefits already taken.
- Conditions for keeping coverage after employment ends.
Employer coverage deserves a separate check. Ask human resources whether it can be continued or converted after leaving, and request the deadlines and costs in writing. Texas regulator guidance recommends checking these options during a job change. (agate.tdi.texas.gov)
Run the worksheet with and without employer coverage. This shows the gap if that benefit becomes unavailable.
6. Work through two hypothetical households
These examples use invented figures to demonstrate the method. They are not typical costs, actual households or recommended coverage amounts.
Household A: a partner and one dependent child
The household chooses a 12-year support period. Its proposed survivor budget is $60,000 annually, excluding replacement childcare and assuming the mortgage will be paid off. Surviving after-tax earnings are $36,000 annually.
| Worksheet item | Calculation | Amount |
|---|---|---|
| Annual support gap | $60,000 − $36,000 | $24,000 |
| Support over 12 years | $24,000 × 12 | $288,000 |
| Replacement childcare | $8,000 × 6 years | $48,000 |
| Mortgage payoff | Hypothetical balance | $180,000 |
| Final and transition expenses | Hypothetical allowance | $20,000 |
| Education goal | Additional funding needed | $40,000 |
| Total planned needs | Sum of needs | $576,000 |
| Available savings | Allocated to these needs | −$70,000 |
| Existing individual life insurance | Assumed verified | −$100,000 |
| Employer life insurance | Assumed verified | −$50,000 |
| Estimated additional gap | Needs minus resources | $356,000 |
Without employer coverage, the additional gap becomes $406,000.
Before using either result to compare policies, this household should verify childcare costs, test whether surviving earnings remain realistic and reconsider the support period. The calculation assumes no inflation or investment return and excludes unverified survivor benefits.
Household B: no dependents or shared obligations
This hypothetical adult has no dependent relatives, caregiving commitments or shared debts. They allocate $15,000 for final and administrative expenses and have $25,000 of accessible savings specifically available for that purpose.
Their worksheet shows:
$15,000 − $25,000 = no positive financial gap
Under those assumptions, the worksheet does not identify a current need for life insurance. That conclusion should be revisited if responsibilities or available resources change.
7. Match the coverage period and check the contract
After estimating the amount, ask how long the gap exists.
Write an end point beside each need: childcare, education, mortgage support or ongoing assistance to a dependent. Term insurance covers a specified period; permanent insurance is intended for longer-term protection. Renewal premiums, conversion options and guarantees require careful review. (content.naic.org)
A lifelong support need deserves a different discussion from a temporary income gap. Ask a licensed professional to explain the options without assuming permanent coverage is automatically necessary.
Before counting a policy as protection, check:
- Exclusions and limitations: what circumstances restrict payment?
- Contestability: when can the insurer review application information?
- Suicide provision: what restriction applies, and for how long?
- Accidental-death benefits: are these conditional additions rather than the base benefit?
- Lapse provisions: what happens if premiums are missed?
Texas consumer guidance describes a two-year contestable period, early suicide restrictions, conditional accidental-death benefits and loss of coverage after lapse. Confirm the provisions that apply to your state and contract rather than treating these descriptions as universal rules. (tdi.texas.gov)
Review application answers yourself. Do not cancel existing coverage before replacement coverage is in place. (content.naic.org)
8. Check the estimate before shopping—and know when to get help
Use this final checklist:
- Have I assessed each adult’s income and unpaid work separately?
- Have I counted mortgage costs only once?
- Are education costs and savings recorded consistently?
- Are subtracted assets genuinely available for these needs?
- Are benefit amounts and coverage dates verified?
- Have I tested longer support periods and lower surviving income?
- Can the household sustain the proposed premiums?
- Have I recorded assumptions that still need checking?
Take the worksheet to a licensed insurance professional for questions about eligibility, policy terms and suitable coverage options. Verify the agent and insurer through your state insurance department. Compare policies with similar benefits rather than choosing on price alone. (tdi.texas.gov)
Ask how the professional is paid, which insurers they can consider and whether their work includes household planning or only insurance selection. For trusts, uncertain debt liability or support arrangements involving a dependent with a disability, seek appropriately qualified legal advice.
Review the plan after major changes in dependents, income, debts, assets or employment. The NAIC recommends periodic coverage and beneficiary reviews. (content.naic.org)
The goal is not the largest possible policy. It is a documented estimate of the financial gap you want to close—and coverage whose amount, duration and conditions fit that purpose.