Glossary

Needs analysis

A structured estimate of how much coverage a family would need, adding debts, income replacement and future goals, then subtracting existing assets.

Also called: life insurance needs analysis, coverage needs analysis, insurance needs calculation

A needs analysis is a method for sizing a life insurance policy by adding up the money survivors would need and subtracting the resources they would already have. It's more precise than rules of thumb such as buying 10 times your income, because it accounts for your actual debts, family situation and savings.

The basic formula: coverage need = final expenses + debts + income to replace + future goals − existing savings and insurance. Say, hypothetically, a parent estimates $15,000 for final expenses, a $250,000 mortgage, $600,000 to replace income for 15 years and $100,000 for college, against $80,000 in savings and $100,000 of group life at work. The need is $965,000 − $180,000 = $785,000, which might round up to an $800,000 policy. The The DIME method for sizing life insurance (debt, income, mortgage, education) is a simplified version of the same idea.

Common gaps are leaving out inflation, the cost of replacing a stay-at-home parent's childcare and household work, or the chance of losing employer coverage after a job change. Revisit the numbers after major life events. An agent's needs analysis can double as a sales tool, so run your own figures too. Use the How much life insurance do I need? and see How much life insurance do I need?.

Last reviewed October 4, 2026

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Related terms

Face amount The dollar amount of coverage shown on a life insurance policy's specifications page, the base death benefit before loans, riders or dividends. Death benefit The money a life insurance policy pays to the beneficiaries when the insured dies, usually the face amount adjusted for loans, riders and dividends. Term life insurance Life coverage for a set number of years, such as 10, 20 or 30, that pays a death benefit only if the insured dies within that period. Group life insurance Coverage issued under one master contract to members of a group, usually employees, often at one or two times salary with little or no underwriting. Beneficiary The person, trust, charity or estate named to receive a life insurance death benefit or an annuity's remaining value when the insured or owner dies.

Related guides

The DIME method for sizing life insurance DIME adds debt, years of income, the mortgage and education costs to estimate coverage. How to run it, a worked example, and what it leaves out. Do I need life insurance? A plain test You need life insurance if someone would struggle financially after your death. A five-question test, who can usually skip it, and what to do next. How long a term should you buy: 10, 20 or 30 years Pick a term that runs until your last big obligation ends: youngest child grown, mortgage paid, retirement funded. How to find that date and when to round up. How much life insurance do I need? Add up debts, the income your family relies on and big goals like college, then subtract savings and existing coverage. Six steps and a worked example. How to buy life insurance, step by step A seven-step process for buying life insurance: size the need, pick a type, choose a channel, compare quotes, apply, accept the offer and check the policy. Human life value: the economist's way to size coverage Human life value prices your future earnings in today's dollars. How the math works, a worked example, and why it's best used as a ceiling, not a target.

Related tools

Human life value calculator Estimates the present value of the after-tax income you would contribute to your family between now and retirement. How much life insurance do I need? Add up income replacement, debts, college and final costs, subtract what you already have, and see how much coverage is left to buy.