Life insurance: Simple Essential Guide (2026)

Term life insurance is often assumed to cost more than it does. This post walks through a simple way to size coverage, including how to treat crypto you count as savings. The title is about subtracting crypto from the calculation, and the encouraging point is that you control that choice: you can decide how much of a volatile asset to count, and see exactly what it does to the number. Figures in the example are assumed, and my own views are labeled.

Life insurance: What a Study Found About Cost Guesses

A 2012 study by the LIFE Foundation and LIMRA, an online survey of 2,011 people aged 18 to 75, found consumers overestimated the annual cost of a 20-year, $250,000 level-term policy for a healthy 30-year-old by nearly three times: respondents guessed about $400 a year when the actual cost was roughly $150. Younger adults overestimated by nearly seven times.

Among reasons given for not buying more coverage, 83% cited that it is too expensive and 85% cited other financial priorities (LIMRA, April 25, 2012). That study is from 2012, so it shows the gap in that year, not today’s prices. A newer one points the same way: the 2025 Insurance Barometer Study from LIMRA and Life Happens found that healthy adults aged 18 to 30 overestimated the median cost of a $250,000, 20-year level term policy by about 10 to 12 times (Life Happens, June 25, 2025). For scale, $150 a year is $12.50 a month and $400 a year is $33.33 a month.

Step 1: Estimate the Coverage You Need

The National Association of Insurance Commissioners’ consumer guide doesn’t give a formula. It says the amount depends on the financial needs that will continue after your death and suggests asking whether anyone depends on you financially, how much of the family income you provide, how your family would pay final expenses and repay debts, and whether employer coverage is enough.

It says employer coverage usually is less than you need and you may lose it when you leave the job (NAIC consumer guide). A simple method adds what your family would need to replace and subtracts what you already have. This is a common approach, not a formal rule.

Remaining mortgage balance
Other debts
Future costs you want covered, such as college
Several years of income replacement
Minus existing savings and workplace coverage

A Worked Example (Assumed Numbers)

Assume a $250,000 mortgage, $30,000 of other debt, $80,000 of college costs, and 8 years of a $70,000 salary ($560,000). The total is $920,000. Subtracting an assumed $50,000 of existing savings and workplace coverage leaves a target of $870,000.

Subtracting Crypto From the Calculation

FINRA describes crypto assets as risky and often extremely volatile, and says you could lose your entire investment (FINRA). Because of that, counting its full current value as savings can overstate what your family would actually have. Counting only part of it, or leaving it out of the subtraction, makes the coverage target more conservative. The percentage is a personal choice; the next section shows how insurers themselves discount it.

Here is the effect with an assumed $60,000 of crypto on top of the example above. The target is $870,000 minus whatever share of the crypto you choose to count.

Share of crypto counted	Amount subtracted	Coverage target
100%	$60,000	$810,000
50%	$30,000	$840,000
0%	$0	$870,000

How Insurers Count Crypto When They Review an Applicant

You do not have to invent your own haircut, because insurers’ reinsurers have published how they treat crypto in financial underwriting. These are guidelines for evaluating an applicant’s finances, not a household planning rule, so using them for your own coverage target is my adaptation.

The Swiss Re underwriting factsheet says to start from current market value and then discount it. Holdings of 10% or less of total assets need no discount. Where crypto is more than 10% but less than 25% of total assets, it suggests about a 40% discount (its example turns USD 1,000,000 into USD 600,000), and holdings above 25% may be disregarded. It also cautions against basing a large sum assured only on a percentage of crypto value because prices can swing sharply. The RGA article from April 2022 makes a similar point: crypto should count toward net worth only when it is a small share of total assets, with a suggested cap such as 25%, and it suggests valuing holdings at their average over two to three years to smooth out price swings.

Here is what that looks like in the example above, with assumed numbers. Suppose the $60,000 of crypto is 20% of your total assets, which is between 10% and 25%. A 40% discount leaves 60% counted, or $36,000, so the target becomes $920,000 − $50,000 − $36,000 = $834,000. If the same $60,000 were only 8% of your assets, no discount applies and you could count all of it, giving $810,000. If it were more than 25% of your assets, the guidelines say it may be disregarded, which leaves the target at $870,000.

Crypto share of assets	Counted	Target
8%	$60,000	$810,000
20%	$36,000	$834,000
Over 25%	$0	$870,000

For the two-to-three-year average, an assumed holding worth $40,000, $70,000 and $50,000 at three year-ends averages ($40,000 + $70,000 + $50,000) ÷ 3 = $53,333. Counting that average instead of whatever the price is on the day you run the numbers keeps one spike or dip from moving your coverage target.

Step 2: Choose a Term Length

The NAIC guide says term insurance gives lower-cost coverage for a set period and that most term policies don’t build cash value. It notes most term coverage can be renewed even if your health has changed, but renewed premiums are higher, so ask in advance what they will be (NAIC consumer guide). In my view, match the term to when your obligations end.

A mortgage that ends in 15 years may call for a different term than children who will be dependents for 20. You can also split coverage across policies of different lengths so the total shrinks as obligations end.

Step 3: Compare Quotes

Quotes for the same coverage can differ between insurers, so in my view it is worth collecting more than one. The NAIC guide advises answering the application truthfully, since false statements found later could reduce or cancel coverage, confirming you can afford the premium, and not canceling a current policy until the new one is in force.

It says you can usually return a new policy for a full refund within a free-look period, usually 10 days after you receive it (NAIC consumer guide). Whether a policy can be converted to permanent coverage varies by policy, and that is a feature to look for in the policy terms.

Beneficiary and Tax Points

The IRS says life insurance proceeds paid because the insured died are generally not taxable and need not be reported, though any interest received is taxable (IRS: Life insurance and disability insurance proceeds).
The NAIC guide advises against naming a minor child as beneficiary, since insurers won’t pay a minor, and suggests considering your estate or a trust instead (NAIC consumer guide).
The guide says you can change beneficiaries at no cost and should review your policy every few years, especially after major life events.

What I’d Do This Week

Run the coverage calculation above with your own numbers.
Collect two or three quotes for the same coverage and term.
Decide how much of any crypto you count toward savings, and write the number down.
Check the beneficiary on any existing policy.

My Take on Life Insurance Guide

In my view, counting a volatile asset at a haircut is a reasonable way to keep the target from being too low.
In my suggestion, revisit the calculation after any large change in the mortgage, the children’s plans or the crypto balance.

Sources

This article offers general information and my own opinions, not financial, tax, or legal advice. The figures in worked examples are assumed. Laws, tax rules, and products change and can differ by location, so check current official sources and talk to a qualified professional about your own situation.

Subtracting Crypto From Your Life Insurance Coverage Calculation