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The other day I answered (or at least tried to) the question about who needs life insurance? As I mentioned then the only people who really need life insurance are those with dependents who are unable to provide for themselves. Another, related and almost as common question is, how much life insurance do I need?

This one is much tricker to answer since it depends on a whole host of factors. Let’s look at a few them to help give you a better idea of much you may need.

The first thing to consider is the direct costs of your death (e.g. your funeral). Do you want to be buried or cremated? Do you want a large funeral or a small one? Costs can easily range from as little as $1,000 to $10,000 or more. Decide what you want and prepare for that.

The next thing to consider are your debts. Do you own your own home? Do you have credit card debt? You probably want to have enough life insurance to cover the costs of all your debts, as well as the direct costs of your funeral. Any savings you may have had, will go towards paying your debts first, before any money goes to your heirs.

The next important thing to consider are your financial assets and alternative income sources. If you have a lot of money in the bank or in other relatively liquid assets such as stocks or bonds, you probably don’t need as much coverage. You heirs can use these to help replace the loss of your income.

Moreover, you need to consider your spouses income. If you and spouse earns roughly the same amount as you, you don’t need as much coverage as when you are the sole or primary breadwinner. The loss of the primary earner in a family is much more financially traumatic than losing one of two roughly equal earners.

Finally, you need to consider other things you may want your money to do. For example, you could have a larger life insurance policy and leave some money to a charity or a church. You may also want to consider leaving enough money for your children’s college fund. Or for that matter to the school which you attended.

So taking all these things into consideration, how much will you need? My general thinking is that most people should have a life insurance policy that pays out roughly 20X their current salary. So, if you earn $50,000 a year you should have a $1 million dollar policy.

However, this is overly simplistic because it does not take into account your own personal financial situation. Therefore, I strongly recommend you use a life insurance calculator tool like the one MSN money. It will give you a more nuanced view of what you may need, but be aware you should probably only use the number it gives you as a base. With life insurance it is generally better to have a little too much than not enough.

To find out how much different options are likely to cost you please use the free life insurance quote form below. All you have to do is pick you state to get instant life insurance quotes.