3. Calculate family maintenance expenses

Next, calculate family maintenance expenses. These include such necessities as child care, food, clothing, utility bills, entertainment, travel and transportation. Transportation costs should also be calculated, however, each adult should be calculated separately so the cost can be applied specifically for each person.

Calculate this figure based on a year's worth of expenses, then multiply that many times the number of years you want to provide this income.

4. Resources to be met

Now that you have tallied all of your income needs, figure out what resources you have to meet them. To do this, add all available savings, stocks, bonds, mutual funds, the death benefit payable under existing life insurance and Social Security. The final figure that shows how much life insurance you need can be quite unnerving.

It's important to count only liquid assets among your resources. You shouldn't count items such as your home or automobile, because selling them for cash after you die would mean changing your family's lifestyle.

5. Subtract your resources

Subtract your resources from the amount of capital needed to meet your family's total financial needs. The figure you get represents the amount of life insurance you should buy.