When it comes to life insurance needs, a large part of choosing a policy is determining how much money you need. The face value, or the amount that the policy will pay when you die depends on a number of factors. If unsure of how to calculate this amount, these are the determining factors.

Debt

When you die, your debts have to be paid off. This includes any amount that you owe on car loans, a mortgage, credit card debt, and other loans. If you have a $300,000 mortgage, for example, and a $4,000 car loan, then you'll need a policy that has at least $304,000 in order to cover these debts. However, you should also ensure that you have the interest covered as well. Taking out more in order to settle extra interest or any charges that may arise is always wise.

Income Replacement

This is probably the biggest factor when it comes to life insurance. If you're the provider for your children or family and bring in $50,000 a year, then you need a policy that will cover your income in addition to a little extra to protect yourself against inflation. Since the payout of your policy is going to be invested, you should choose an amount that can be taken out each year. There are a number of online insurance estimators that you can use to calculate how much to decide as your income replacement. This amount is generally in the hundreds of thousands of dollars. However, if your dependents will only need your income for a few years, this amount may end up being lower.

General Considerations

Although you can always use online calculators, a general rule of thumb is to add up debt and final expenses, the number of years of annual income, your mortgage, and the cost of sending your kids to college or school. Add all of these expenses together and you'll have an idea of how much you need for your payout. However, while this formula is fairly comprehensive, it doesn't account for your current assets. You may also want to consider how much contributions your spouse or partner has as well.

Once you've added these expenses together, you can subtract your liquid assets from this number. This would include savings, any existing college funds, and other financial assets.

Don't Skimp

Once you have this general number, you may be tempted to get exactly this amount. However, financial planners usually recommend getting slightly more coverage than you think you need. Your income will likely rise over the years and there's also inflation to consider. Expenses are always on the rise and your insurance coverage at present may not be adequate in the future. While you can't anticipate the future entirely, having a cushion will ensure that your family is not left high and dry.

Now that you have an idea of how to estimate your needs, use this information to estimate how much you'll want to get for your life insurance and ensure that you have adequate coverage.