Key Takeaways
- The average American is underinsured by $200,000—the "10x income" rule misses debt and education
- A family earning $100K needs $1.5-2M total when you include mortgage, education, and final expenses
- Clients who calculate their own needs buy 40% more coverage than those given a number
Calculating Protection Needs
Client Question: "Everyone says 10x income—is that really enough?"
The Basic Formula
Total Need = Income Replacement + Debts + Future Expenses + Final Costs
| Component | What to Include |
|---|---|
| Income Replacement | Years of income family needs (10-20 years typical) |
| Debts | Mortgage, car loans, student loans, credit cards |
| Future Expenses | College funding, weddings, major purchases |
| Final Costs | Funeral, estate settlement, medical bills |
Rules of Thumb (Starting Points Only)
- 10x income — Simple rule, but often insufficient
- DIME Method — Debt + Income + Mortgage + Education
- Human Life Value — Present value of future earnings
These are conversation starters, not final answers.
The Numbers Conversation
A client who doesn't know how much coverage they need
Setup
A prospect has agreed to explore life insurance but has no idea what amount makes sense. They earn $85,000/year, have a $300,000 mortgage, and two kids ages 5 and 8.
Client says:
“So how much life insurance should I get? A million dollars? Is that too much? Too little? I have no idea how to figure this out. I keep seeing ads for $500,000 policies—is that what people usually get?”
Practice Objectives
- 1Don't just give them a number—walk through the logic
- 2Calculate income replacement needs together
- 3Add in mortgage payoff and children's education
- 4Discuss whether spouse would work after their death
- 5Arrive at a number that makes sense to them, not just to you
The Underinsured
Someone who thinks their current coverage is enough
Setup
A client has $100,000 in group life insurance from work and thinks they're set. They make $120,000/year with a $400,000 mortgage.
Client says:
“I already have $100,000 through work—that should cover things, right? My wife could use that to pay bills while she figures things out. Plus I have some savings. I think we're probably okay.”
Practice Objectives
- 1Don't immediately tell them they're underinsured
- 2Ask questions that help them see the gap
- 3How long would $100,000 last with their current expenses?
- 4What would the mortgage situation be?
- 5Let the math speak for itself
The High Earner
A successful professional with significant income
Setup
A doctor earning $400,000/year wants to discuss life insurance. Standard 10x income seems excessive. Spouse also works and earns $80,000.
Client says:
“I'm a surgeon, and I make around $400,000. My wife is a teacher making $80K. We have two kids. Someone told me I need $4 million in life insurance. That seems crazy. Wouldn't my wife be fine on her income plus something reasonable?”
Practice Objectives
- 1Acknowledge that 10x income isn't always the right answer
- 2Explore their current lifestyle and expenses
- 3Discuss whether spouse would need to maintain their income
- 4Consider private school, college, lifestyle expectations
- 5Find a number that balances protection with reasonableness
A client earning $100,000/year with a $250,000 mortgage and two kids has $200,000 in coverage. They ask if that's enough. Your best response is: