By Marc Gilman
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Key Takeaways
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The standard approach works backward from your family’s actual obligations: add up debts and known future costs first, then layer in income replacement for whoever depends on your paycheck.
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A worked example from a certified financial planner: a 35-year-old earning $200,000/year, with a $400,000 mortgage, $350,000 in future college costs for two kids, and $250,000 in existing student debt, lands at roughly $4 million in coverage once income replacement is included.
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The income-replacement piece rests on an assumed withdrawal rate that’s easy to miss. A common rule of thumb — $1 million of coverage for every $50,000 of desired annual income — assumes the family can safely draw 5% a year from that payout indefinitely, which is more aggressive than most current retirement-withdrawal research supports.
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At a more conservative 4% withdrawal assumption, that same $50,000/year need requires $1.25 million, not $1 million — a meaningful difference once it’s layered across a full coverage calculation.
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The non-earning spouse needs coverage too. Their unpaid labor — childcare, household management — has a real replacement cost if they’re no longer there to provide it.
Start with hard obligations
The most common approach to sizing a life insurance policy works backward from your family’s actual financial picture rather than picking a round number. Financial planner Andrew Rosen, CFP, frames it as figuring out what financial outlays would need to be covered if you weren’t there — a specific, obligation-by-obligation total rather than a guess.
That generally starts with debts and known future costs: any mortgage balance, existing personal or student debt, and costs you know are coming, like college tuition for kids currently in the picture. Only after that’s totaled up does the calculation move to the harder piece — replacing ongoing income for whoever depends on it.
A worked example
Here’s how that plays out with real numbers, using an example built by Rosen for a hypothetical family. Picture a 35-year-old earning $200,000 a year, married with two children:
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Mortgage balance: $400,000
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Future college costs for two children: $350,000
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Existing student loan debt: $250,000
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Subtotal — debts and known costs: $1,000,000
That’s before touching income replacement at all. From there, the example adds coverage to replace ongoing income for the surviving spouse — in this case, using a rule of thumb of $1 million in coverage for every $50,000 of desired annual residual income. Wanting to leave $150,000 a year adds $3 million more, bringing the total for the working spouse to $4 million.
The assumption hiding inside “$1 million per $50,000”
That rule of thumb is worth pausing on, because it embeds an assumption that isn’t stated outright: $1 million generating $50,000 a year in perpetuity implies a 5% annual withdrawal rate. That’s more aggressive than what current retirement-income research generally supports as a sustainable, indefinite withdrawal rate. Morningstar’s 2026 retirement income research puts a conservative baseline closer to 3.9%, while a more optimistic figure — the original “4% rule” author’s own more recent estimate — runs closer to 4.7% under favorable conditions. A flat 5% assumption sits above most of that range.
Running the same example at a more conservative 4% withdrawal rate instead of 5% changes the math meaningfully: $50,000 a year in residual income would require $1.25 million, not $1 million. Scaled up to the $150,000/year target in the example above, that’s $3.75 million in income-replacement coverage instead of $3 million — bringing the total for the working spouse to $4.75 million instead of $4 million, a nearly 19% difference driven entirely by which withdrawal assumption gets used.
Neither number is “wrong” exactly — it depends on how conservatively you want to plan, and for how long the money needs to last. But it’s worth knowing that assumption is baked into any rule of thumb like this rather than treating $1 million per $50,000 as a fixed, universal formula.
Don’t forget the other spouse
The example above focuses on replacing the working spouse’s income, but a non-earning or lower-earning spouse needs coverage too. If that spouse passed away, the family would likely face new costs — childcare, help around the house — that their unpaid work had been covering. Rosen’s example adds $1 million for debt coverage on that spouse plus roughly $1 million more to cover about $50,000 a year in additional costs like childcare until the children are grown — again, worth adjusting using the same 4%-vs-5% logic above if you want a more conservative figure.
Putting it together
None of these numbers are meant to be copied directly — they depend entirely on your own mortgage, debt, number of children, desired income replacement, and how conservatively you want to plan around withdrawal assumptions. What’s transferable is the method: total up hard obligations first, decide how much annual income you want replaced and at what withdrawal assumption, and make sure both spouses are covered, not just the higher earner.
What To Do Next
If you want help running your own numbers — including deciding how conservative to be on the income-replacement assumption — reach out and we’ll build it out together.
Questions? Call (800) 927-9326 or email
This article is for general educational purposes and is not a recommendation to purchase any specific insurance product, nor tax or financial advice. Consult a licensed advisor to review your specific situation.
