How to calculate term life insurance.

Are you considering buying term life insurance? Read on for help estimating how much life insurance you need and to learn how premiums are set.

Rather than take a one-size-fits-all approach, we can create a combination of term life policies to build a portfolio that meets your specific needs. Since term life insurance comes in a variety of durations—anywhere from one to 10, 15, or 20 years—it’s easy to match your coverage to your actual needs.

Life insurance is something you should have if there are people in your life depending on you for college tuition, or for help with various milestones. Life insurance can make a huge difference for you and your family, not just financially but emotionally. And purchasing a policy sooner, rather than later, will give you more options and flexibility, as well as provide financial security for your family if the unexpected occurs.

Married couple walking down aisle

How much life insurance do I need?

This is a very individual matter. The amount of insurance you need depends on where you are in your life and the people who depend on you financially. When you're starting a family, you probably want to have enough to replace the contributions you make to your family, including income, so your spouse or partner and your children have the support they need. Later in life, when your kids are grown and your house is paid for, you may want to reassess the amount of life insurance you have, focusing on final expenses and other obligations, like outstanding debt.


How much term insurance should you get?

You can use any number of planning tools to get an idea of the amount of coverage you'll need. And once you've done your preliminary research, you'll want to consult an agent to help decide what’s best for your specific situation. But here are some easy ways to get a ballpark number:

  • The easiest way is to simply take your annual salary and multiply by eight.
  • Another way: Multiply your annual income by the number of years left before your retirement benefits kick in.
  • Add up the annual expenses your family regularly incurs, such as a mortgage or rent, food, clothing, educational expenses, and car costs. Then take your ongoing yearly expenses and divide them by 0.07. That translates to needing a lump sum earning approximately 7% each year to pay those ongoing expenses. Add to that amount the money needed to cover the one-time expenses your family will incur at your death, and you'll have a rough estimate of the amount of life insurance you need.

But as useful as rough estimates and calculators are, they cannot provide you with final answers. Calculators only allow you to perform "hypotheticals," recalculating and generating new results as you make and input new assumptions.

Using these tools and educating yourself on the workings of life insurance and other financial products, however, can help you feel more comfortable when discussing your needs with a financial professional like a New York Life agent.


How is the cost of term life insurance calculated?

The cost of life insurance is based on several factors: your age, gender, health, lifestyle, and occupation. Regardless of your budget, a financial professional should be able to find a solution that covers your needs at a price that suits your wallet. The following are just some of the factors that determine the cost of your policy:

  • Age
    Life insurance is less expensive when you’re younger. Every year you put off purchasing it will mean higher premiums. (There are occasional exceptions: If your health improves significantly or you quit smoking, your cost could go down. But don’t put off purchasing life insurance in the hope that you’ll be able to quit smoking someday.)
  • Health
    Preexisting health conditions or unhealthy habits (like smoking) impact the cost of insurance. So does a dangerous profession or a dangerous hobby.
  • Coverage
    The bigger the death benefit, the higher the premiums will be.
  • Term
    Premiums of a life insurance policy with a shorter term will be lower than premiums for a policy with a longer term.


What term policies are available?

  • Yearly renewable term
    Coverage lasts a year and can be renewed. Its initial cost is lower than the cost of level premium term, but premiums go up each year. It’s ideal for those who need insurance for a short period of time or who plan to convert* to a permanent policy within a few years.
  • Level premium term
    You can lock in level premiums for 10, 15, or 20 years. The longer the term, the higher the premiums. Although a longer term will cost you more initially, by the end of the term your overall cost will be lower than the cost of yearly renewable term for the same length of time.


Customize your term life insurance policy with the following riders

  • Spouse's Paid-Up Insurance Purchase Option Rider1
     With this rider, your spouse, as the beneficiary, can use the proceeds from your policy, in the event of your passing, to get paid-up insurance without a medical exam. This rider is automatically included in most New York Life policies.
  • Disability Waiver of Premium Rider
    If you become disabled, New York Life will cover your premiums with this rider, which is available at an additional cost.
  • Living Benefits Rider2
    This rider allows you to use a portion of your death benefit to pay for treatment or care if you are terminally ill.

With term life insurance, you can create the right foundation. If your needs evolve and you want to build toward longer-term financial security, talk to your New York Life financial professional, who will show you how easy it is to upgrade to permanent protection and a host of living benefits.

Frequently Asked Term Life Questions

Term life is basic insurance. It is purchased for a specific period of time—or term. It does not have an accumulation component (as permanent policies like whole lifeuniversal life, and variable universal life do). Term life is ideal if you need insurance for a limited period of time (until you pay off your mortgage, for example, or until your children graduate from college). It is also a smart purchase for younger adults, particularly those with children: They get the coverage they need, they can lock in their insurability, and they can convert* some or all of their term policy to long-term or permanent coverage as life goes on.

This amount varies widely from individual to individual. If your children are still in high school, you have 20 years left on your mortgage, and you have fallen behind on your retirement savings, you will need enough life insurance to see your children through college, pay off the mortgage, and give your spouse a comfortable retirement. But if your mortgage has been paid off, your children have completed college, and you have adequate retirement savings, your life insurance needs may be modest. Business owners, however, may still have a need for life insurance well into their older years to cover certain partnership agreements, secure loans, or even plan for business succession. Talk with an agent to determine the right amount for you.

Again, this varies with the individual. If you are younger, you can cover all of your insurance needs at a relatively modest price (and even convert some or all of your term insurance to long-term coverage if it becomes clear that you will need coverage past the conclusion of the term).


After you reach the end of your term, your New York Life term policy can be renewed on a year-by-year basis up until age 90. But your premiums will rise every year, and you will probably reach a point at which the policy ceases to be at a cost you are comfortable with. That’s why it’s important to lock in your insurability when you’re relatively young. And be aware that if you need the insurance for more than 20 years, a permanent policy will likely be a better long-term value.


A simple policy to adequately cover funeral and burial expenses will be modestly priced at almost any age. More substantial coverage may not be. But if you are past a certain age and need insurance, don’t just assume that you can’t afford it. Consult a New York Life agent.

The vast majority of term life policy owners (99%3) outlive their term—and are delighted to do so. This is why term coverage can be offered at a modest cost. And it’s why the death benefit of a term policy far exceeds what has been paid in premiums.

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Want to learn more about term life insurance?

A New York Life financial professional can help determine what’s right for you.

1Rider Insured’s Paid-Up Insurance Purchase Option in New York.

2Not available in every state. There is a cost to exercise this rider. Products and riders are available in approved jurisdictions, and names and features may vary.

3Life Insurance Statistics," The Zebra, January 30, 2023.

*Term conversion guidelines and limitations, such as timing, may apply; for example, there may be a ten-year conversion privilege for some products and a five-year conversion privilege for others. See the product factsheet or speak to your agent for more details.