One in five Americans don’t believe they have enough insurance coverage. It’s understandable! Life insurance is already a seemingly complicated subject, and it’s not necessarily one that adults love thinking about or planning for. So how do you know if you have enough insurance coverage?

A common rule-of-thumb is that an individual should have six to 10 times their annual salary in life insurance coverage. While that is a great rule to follow, that’s not always completely accurate for everyone.

Life insurance can help your loved ones cover end of life and funeral expenses, as well as any lingering debts that may be in your name. It’ll also help them manage the day-to-day living expenses so they don’t have to completely alter their life and lifestyle after you’re gone.

There are a handful of factors that go into determining if you have enough life insurance coverage.

Age

Remember the rule of thumb that you should have six to 10 times your annual salary in life insurance coverage? Times that by the number of years you have left until retirement.

One of the biggest myths of the industry is that life insurance isn’t for those who are older, and that you’ve missed the boat if you didn’t get life insurance when you were young. While it’s true that life insurance is more affordable when you’re younger, it is still completely accessible to you when you’re older.

Debt

Life insurance can be used to pay off any outstanding debts after you’ve passed, including student loans, mortgages, credit cards, and personal loans. The amount of debt you have at the time of obtaining life insurance is a good guideline to follow. For example, if you have a $350,000 mortgage, plus a $10,000 car loan, you need at least $360,000 in your policy to ensure your debts are covered. It’s also wise to consider interest, so a slight buffer on top of that debt coverage would be ideal.

Income

Life insurance can also act as income replacement for the loved ones you leave behind. If you are a primary earner in your family, the loss of your income could be detrimental to your dependents. For example, if you make a $50,000 a year salary, you’ll need a life insurance policy payout that is large enough to replace that income.

How Much Life Insurance Is Enough

As best practice, follow this calculation when starting to determine how much life insurance coverage is enough.

Your salary multiplied by your years to retirement, plus your debts.

So for example, if you make $50,000 a year and have 20 years to retirement and $360,000 in debt, you need at least a $1,360,000 life insurance policy.

When you need life insurance, it’s important to know how much and what kind you need. That’s why it’s best to have a life insurance professional help you, so you can ensure you and your family are protected.