It's one thing to understand how life insurance works and why it's important. But figuring out how much you need can be little more complicated.

The amount of life insurance that's right for you and your family will depend on your life stage and your financial obligations.

That's why USAA recommends working with a life insurance professional who can help navigate your life insurance needs. But doing a little research on your own can go a long way in helping smooth out the process.

Why do I need life insurance?

Losing a loved one is emotionally devastating. Having adequate life insurance coverage can keep it from being financially devastating as well. Life insurance provides much-needed cash to beneficiaries, helping them maintain the financial life they're used to.

You don't buy life insurance because you might die, but rather because those you care about are relying on your financial support. This could be a spouse, children, parents, significant other or other dependents. Life coverage is considered an important part of any sound financial strategy.

What can life insurance cover?

Your life insurance policy's death benefit can be used in many ways — to pay off outstanding debt so it isn't passed to your loved ones, to take care of your final expenses, to fund your dependents' future education and more.

One of the biggest reasons for purchasing life insurance is to replace your income. If you're the primary breadwinner in your household, it's essential to have enough life insurance coverage to replace your income and provide for your family after you die.

Many people also use life insurance to cover funeral costs, which can add up quickly. If your spouse is a stay-at-home parent, the death benefit from your life insurance policy can help cover the cost of child care, housekeeping and other expenses like school tuition.

How do you determine how much life insurance you need?

It can be difficult to figure out how much life insurance you need. You might need less insurance if you have existing life insurance or you're single without children. You might need more insurance if you're taking care of disabled dependents or want to leave a legacy gift to a charity.

Although there are rules of thumb on how much life insurance someone should have, it is best for you to take advantage of available resources and professional advice to determine the specific amount you need for your unique situation.

Let's review some of the most common methods used in the life insurance industry.

DIME method

The DIME method is a straightforward way to determine how much life insurance you need. DIME stands for debt, income, mortgage and education. To use this method, add up your:

• Debts, which include things like your personal and student loans, credit card debt and car loans.
• Income need, which takes annual income and multiplies by 10 to 15
• Mortgage balance
• Education costs for your children

The total is an estimate of how much you'll need from your life insurance policy.

Human life value method

The human life value method can be a helpful way to think about your future life insurance needs, especially if you're looking to understand the maximum amount you may need.

While this method considers your current earnings, it puts more emphasis on your future earnings potential. It sometimes includes an estimate for tax or other expenses, time until earned income will cease and assets to offset need. It uses a future value calculation to determine the income potential that would be lost as of today.

Income method

The income method is straightforward: Multiply your annual salary by 10 or 15. So if you make $50,000 a year, you'd need $500,000. Some professionals suggest adding $100,000 per child.

This method doesn't attempt to replace your income for a set number of years, but it does make sure there's money to make regular payments while providing a solid nest egg for your dependents.

Life insurance needs calculator

Based on needs analysis, many companies and digital resources now offer a life insurance calculator.

Answer a few questions about your personal finances — including your salary, debt, mortgage, savings, etc. — and the tool will provide an estimate of how much life insurance you'll need.

That can be a good starting point for a conversation with an insurance professional and is a common approach in financial planning.

USAA's Approach

At USAA, we use the L.I.F.E. method. Ask yourself the following questions:

• Liabilities: What amount of money would be needed to make your family debt free?
• Income at risk: How much money would it take for your family to meet your current monthly expenses if they lost your income?
• Final expenses: How much will your family need for your funeral costs, final medical expenses or other immediate costs?
• Education goals: How much will your children need for future education expenses?

Assess your financial goals

Before you calculate your life insurance needs, ask yourself who and what you want to protect. Then take the following steps.

Step 1: Review your L.I.F.E. goals to determine your needs.

Review your debts, decide how long you want your income to be replaced, tally up final expense costs and consider any other financial goals like paying for education or leaving a legacy. This will give you a baseline for addressing needs and helping your family maintain their lifestyle.

You may also consider your spouse's future earning ability or any other financial goals, like retirement savings or paying for out-of-pocket health care expenses. For example, if your spouse had to take a different job or could no longer work, you may need to calculate that in your income replacement needs.

Step 2: Consider what you have already and what your loved ones would use for current living needs.

Add up all life insurance policies you own — excluding a group-owned or employer-provided policy, unless it is transferable if you change jobs or retire. Determine the amount of savings, investments and retirement accounts your family would be able to use for living expenses, including equity in any real estate property you own.

Keep in mind that using retirement savings to supplement life insurance can reduce the amount of life insurance you need, but it can leave your spouse with less when they retire. It's important to determine which assets you want to include as part of your life insurance calculations.

Step 3: Subtract your total assets and insurance from your total life needs.

This number will leave you with an estimate of how much life insurance you should consider.

Ready to buy life insurance?

Once you've determined how much life insurance you need, you can begin shopping for coverage. Depending on your budget and what you're looking for in life insurance, you can choose between term life insurance, permanent life insurance or a combination of both.

A life insurance professional can help you review your situation and talk through your options to ensure you've made the best decisions to protect your loved ones.