This is one of the oldest and most well known methods. It is also one of the simplest and easiest to use. This method uses a multiple of your annual income, typically ranging from five to eight times your annual income. This is the most frequently mentioned method by financial columnists in consumer publications.
While simple, this earnings-multiple method misses a range of important factors. For example, it ignores household demographics, past savings, Social Security offsets, housing expenses, taxes, etc. It also ignores expected life changes and individual preferences about sustaining the living standards of survivors. This is a "best guess" method.
Cover Your Debts:
This entails buying only enough life insurance to cover debts -- such as mortgage, student loans or outstanding car notes.
The disadvantages with this method are similar to those for the multiple of income approach -- it misses a whole range of factors, such as future debts or needs (e.g., child care, college education costs). This method is also too simplistic to provide any real value.