Life insurance is important and worth having before you really need it. But even if you nod, you may still be wondering, how much life insurance do I need?
The sweet and simple answer is between 10 and 12 times your annual income. why 10-12 times? because if you die, that amount replaces your salary and gives your family a comfortable financial cushion while they recover from their loss. it also gives them money that they can invest for future income. Buying coverage 10-12 times ensures that no matter how your family feels, they won’t feel a financial squeeze when you’re gone.
let’s see exactly how to calculate your magic number. And don’t underestimate yourself, you’re worth more than you think!
How much life insurance do I need?
let’s get right to the point: you need coverage equal to 10-12 times your annual income. and convert it to a level term life policy that lasts between 15 and 20 years.
We all know that a death in the family is a huge blow, and real life is about more than just numbers. you don’t want your family to worry about financial problems while they are going through such a difficult time. That’s what having life insurance is all about.
When you set your death benefit (which is another way of saying payment) at 10-12 times your income, you make sure you replace your salary and then some. sounds like a lot. but that term life insurance is pretty cheap for most people. In addition, he not only seeks to attend to the immediate needs of his family, he also wants to ensure that their future needs are covered.
The reason we say you need a 15-20 year policy is also simple: If you have young children, when the term life policy ends, they’ll be out of college and able to support themselves. the only coverage they’ll need is during those intervening years, when they’re totally dependent on you.
If you’re following our small steps, you’ll be busy building an emergency fund and investing your money in mutual funds for those 15-20 years. therefore, when your term life insurance plan ends, you will be “self-insured” and will not need life insurance.
what does life insurance cover?
It may sound morbid, but life insurance covers one thing: your death. (Technically, it should be called death insurance, but who would buy that?) Term life insurance’s only job is to provide a death benefit to your beneficiaries (your family) if you die during the term of the policy.
As we said earlier, it covers bills, expenses, and everything else essential for your dependents to survive if you’re no longer there. And when you buy a policy worth 10 to 12 times your income, your family can invest your life insurance money in good growth stock mutual funds and use the growth of those investments to replace your income for years to come. .
suppose we have a friend named alex. he is a thirty-something office worker earning $40,000 a year. he is married to sara and they have two small children. Sarah is a housewife. this is what alex and sara are thinking when it comes to life insurance. . .
Take your annual salary before taxes and multiply it by at least 10. If you have a job where you expect your salary to increase in the next 5 to 10 years, use that figure when you do your calculations. In Alex’s case, he earns $40,000 a year before taxes. That means you need a term life insurance policy with at least a $400,000 death benefit if you die.
stay at home dad
The stay-at-home dad in your life may not be working outside the home, but he or she is providing a valuable service to the family. Let’s look at Sarah. she is a housewife. that means she’s taking care of the kids, running the household, being the super driver for the kids, and everything in between. free”! Sara should get her own term life policy for between $250,000 and $400,000 coverage to cover those jobs.
If you have children, they depend on your salary to support them. alex and sara’s children are 3 and 6 years old. that means they will be dependent on their parents for 15 to 20 years. And it’s not just about school and college fees, it’s also about medical bills and extracurricular activities. That’s when coverage of 10 to 12 times your annual income gives your children a secure future until they can support themselves.
Some people who may not have enough in the bank will use life insurance to pay for their funeral. The average cost of a funeral these days is a whopping $7,848.1 Here’s another way to pay for your funeral: Set aside $50 a month, invest it somewhere (like a good mutual fund), and your money could grow to be more than enough to cover his funeral expenses.
What type of insurance should I take out?
The type of life insurance we always recommend is term life insurance. Here’s how term life insurance works: It’s for a set duration of years (reminder: get a 15-20 year term), and the monthly premiums are always lower compared to whole or permanent life insurance plans.
how much will it cost?
The cost of life insurance is determined by age, health and lifestyle. Alex is in good shape and wants a 20-year term life insurance plan with a $400,000 death benefit. how much will he pay? about $18 a month, less than what you spend on coffee every month!
Dave recommends term life insurance because it’s affordable. you can get 10 to 12 times your income in your payment, and you can choose a term length to cover those years of your life when your loved ones depend on that income.
the next step towards the best insurance for you
just like alex and sara, if you have the right tools, you can calculate how much life insurance you and your family need. the first important step in thinking about life insurance and the protection and peace of mind it can provide.
We believe a term life insurance plan makes the most sense for everyone. And if you’re on the market for new life insurance or want to talk to an expert, we recommend Zander Insurance from trusted provider Ramsey. have been helping people find the best term life plan for decades. Don’t let another day go by without being protected. start here to get your term life insurance quotes.