Most people guess. They pick a round number that sounds responsible, or they accept whatever their employer offers, and they move on. The guess is usually low. Here is the method I use on the first call with almost every family, and you can run it yourself in about five minutes.
What is the three-number method?
Add the income your family would lose to the debts and final costs they would face, then subtract the coverage you already have.
That is the whole formula. Each of the three numbers deserves a little thought, so let us take them one at a time.
Number one: income times years
Start with the income your household would actually lose. Take-home pay is fine. Then decide how many years that income needs to keep arriving. Ten years is a common starting point. Parents of young children often choose the number of years until the youngest is independent, which can be 15 or 20.
There is no perfect answer here. A longer window costs more in premium but gives a surviving spouse more room to grieve, retrain, or stay home. Pick the number you would want if it were your family living through it.
Number two: debts plus final expenses
List everything that would need to be paid off or carried: the mortgage, car loans, credit cards, student loans, and any business debt you personally guaranteed. Then add final expenses. Funeral, burial or cremation, and the last medical bills run around $15,000 for many families, so that is the placeholder I use until we know more.
Some families also add a college fund here. If that matters to you, include it now rather than hoping it fits later.
Number three: coverage you already have
Add up every policy currently in force. Include the group life plan through work, any individual term policy, and any small permanent policy a parent may have bought for you years ago. Be honest about which ones would still be there in five years. More on that below.
A worked example from Roseville
Picture a household with one primary earner bringing home $75,000 a year, two kids in elementary school, and a mortgage with $250,000 left on it. The earner has $100,000 of group life insurance through work and nothing else.
- Income to replace: $75,000 times 10 years equals $750,000.
- Debts and final expenses: $250,000 mortgage plus $15,000 final expenses equals $265,000.
- Total need: $750,000 plus $265,000 equals $1,015,000.
- Coverage in place: $100,000.
- The gap: $1,015,000 minus $100,000 equals $915,000.
Nine hundred fifteen thousand dollars. That number surprises almost everyone the first time they see it. It is not a sales figure. It is simply what it would take for this family to keep the house, keep the routine, and not depend on the kindness of relatives.
Key takeaway: multiply income by years, add debts and about $15,000 in final expenses, then subtract what you already have. For a typical Roseville family, the gap is often several hundred thousand dollars larger than the policy at work.
Why is group coverage through work not enough?
Because it is usually small, and because it ends when the job does.
Most employer plans pay one or two times salary. For our example household, that is the $100,000 already counted. It helps, but it covers about one year of income and none of the mortgage. The bigger problem is portability. Leave the company, get laid off, or retire, and the coverage usually stops within a month. Some plans let you convert to an individual policy, but the conversion price is often much higher than buying your own term policy while you are healthy.
Treat work coverage as a bonus, not a foundation. Own the foundation yourself.
How do you split the number between term and permanent?
A useful rule: the part of the need that goes away over time belongs in term, and the part that never goes away belongs in permanent coverage.
Income replacement and the mortgage are temporary needs. In 20 years the kids are grown and the house is closer to paid off. That is exactly what a 20-year term policy is built for, and it is the least expensive way to cover a large amount.
Final expenses, a legacy for a spouse, or cash a business partner would need to buy out your share are permanent needs. A smaller whole life or indexed universal life policy can hold that piece, and it stays in force as long as the premiums are paid.
In the example above, that might look like an $850,000 20-year term policy alongside a $65,000 permanent policy. Or it might be all term, with a conversion privilege you use later. There is no single right answer, and the split depends on budget, health, and what you want the money to do. I walk through those trade-offs in more detail on the life insurance page and in the article on term vs. permanent coverage.
What the method leaves out
This is a first pass, not a final answer. It ignores savings you already have, which reduce the need. It ignores Social Security survivor benefits, which can be meaningful for families with minor children. It also ignores inflation and future raises, which push the need higher. A real conversation adjusts for all of that in a few minutes. The point of the method is to get you from a guess to a defensible starting number.
Run your own numbers
The coverage gap tool on our home page does this math live with four sliders. Move them to match your household and watch the result. Then, if the number surprises you, book a free consultation and we will turn it into two or three real quotes from carriers that fit your health and budget. You will leave knowing what each option costs and what it does. Then you decide.