If you’re buying life insurance, one of your first questions is: How much life insurance do I need?

There are multiple ways to calculate the right life insurance coverage amount, but not all methods are optimal.

How Much Life Insurance Do You Need?

Your savings, debts, income and family situation all play roles in figuring out how much life insurance you need.

You want a death benefit amount that will provide funds to cover the items your family will need money for. For instance, if you want life insurance to replace your income if you were to die, you need a policy with a much higher death benefit than if you want a policy to simply pay for your final expenses and burial.

There are multiple formulas to figure out potential life insurance needs, including multiplying your income by 10 and the DIME (debt, income, mortgage and education) method. These methods don’t offer a full financial picture, though.

Here’s what you might include in financial obligations to cover:

• Income replacement. Multiply the salary you want to replace for the number of years you want to replace it. You want this income replacement to cover current and future expenses.
• A mortgage. You can include the balance of a mortgage so your family can stay in their home without fear of losing it. If income replacement (above) would already cover mortgage payments and other expenses, no need to add more mortgage money.
• Other large debts. Would your family struggle with other large debts if you passed away unexpectedly? If so, add those amounts to the total.
• Children’s college tuition. Add tuition money to ensure your children can pay for college if you were no longer around.Here’s what you could include in “existing assets that can be used toward bills”:
• Existing life insurance. Subtract any other life insurance that you already have. Be careful about relying on supplemental life insurance from work though—it doesn’t go with you if you leave a job, so you can’t be sure you’ll have it later on.
• Savings. Subtract any savings your family would use to pay expenses. You can include retirement savings such as a 401(k) plan, or leave it out of your analysis if your beneficiaries want to preserve that money for retirement years.
• College 529 savings. If you have a 529 account with money in it for your children, you can subtract it from your life insurance needs.
• Funeral expenses. Many people want life insurance to cover funeral and final expenses. If this cost isn’t part of a larger policy, some people buy burial insurance.

Other Methods for Calculating Life Insurance Needs

You may run across other methods for calculating how much life insurance you need. These usually include: