There isn't an exact formula to follow to calculate how much life insurance coverage you need. I like to ask clients these questions to gather data around how much of a death benefit they need, and for how long they need it.
How much income do you need to replace? How many years' worth?
Do you have a mortgage or other debts to pay off?
Are you planning on paying for private school/college for kids? How much will this cost?
Will your surviving spouse have to pay for childcare?
Will your surviving spouse be able to continue saving for their retirement?
What assets do you currently have working towards these goals?
The hard part is answering these questions. Once you do that the math is easy.
One thing that is often overlooked is that your answers and numbers above may (and probably will) change, so you should build flexibility in your insurance strategy to account for these possible changes.
We've found clients find it helpful when they detach themselves and their emotions from the equation and look purely at the numbers. As their advisor we help bring that objective, neutral perspective to get them the right strategy without over or under-building it.
If you need this perspective or have questions about how to build your insurance strategy please let us know!