How Much Life Insurance Do I Need?
Have you ever been on a camping trip or a long road trip where you had to buy supplies? You had to buy food, you had to buy snacks, water, all that good stuff, but you're just not sure how much to buy if you've never done it before. When it comes to buying life insurance, it can be equally confusing. How much life insurance do you need to buy and how long do you need to buy it for? Hey, this is Jeff Rose, Certified Financial Planner and life insurance expert. Let's see if we can answer that question in this video.
You finally decide that you need to buy life insurance. Now you're trying to figure out how much you buy and how long you buy it for. First, let's answer the easier question.
How Long Do You Buy It For?
If you're in your 20s, 30s, or maybe even early 40s, then chances are a 30-year term is going to be your best bet. Why? Face it, we're all living longer. If you can lock in a low rate for 30 years, why not, as long as you can afford it? If you can't afford it, then consider going down to a 25- or 20-year term.
Now, the more difficult question:
How Much Life Insurance Do You Buy?
There are many rules of thumb that you can follow. One common rule is to take your income multiplied by 10, and that's how much life insurance you should buy. For example, if you make $50,000 a year and multiply that by 10, you need to buy $500,000 worth of life insurance.
Now, the one thing I'd have you consider is this — if you're young and you're making $30, $40, $50,000, chances are you're going to be getting raises through the years, and maybe your family is going to be growing. As your family grows and your income grows, you're probably going to buy more life insurance. I know for me, personally, I first started with a $250,000, 30-year term policy. That's when I was just newly married. I now have three children, so my level of responsibility has grown, and so has my life insurance. Now, I have over $2.5 million of life insurance. That might sound like a lot for many of you, but keep in mind: my wife does not work, we've got three kids, we've got the mortgage; I just want to make sure they're all taken care of. Don't feel that you need to buy that amount, but using that 10 times rule of thumb is a good place to start.
Here's one thing I'd have you consider. Knowing that you're going to have a growing family and you're going to have income increases over the years, instead of using 10 times your annual income, you might want to make it 15 or 20 times. That way, you don't have to worry about getting life insurance coverage later on. Obviously, this all has to factor into your budget. I don't want to see you spending too much money on life insurance where you can't fund your 401K or fund your Roth IRA. You definitely want to be saving for your future, but you want to have some life insurance coverage. Trying to find that balance for you and your budget makes total sense.
To help you better understand how much life insurance is going to cost, you can use the free quote engine on Wise Bread. You can run quotes all day long and you can change the amounts and the terms to see makes the most sense for you. If you need further assistance, feel free to talk to one of our life insurance specialists. We can sit down and run the numbers for you and better assess how much you really need and how much you can afford, and we'll help you get the most affordable policy for you.
If you have any more life insurance related questions, this is Jeff Rose, your resident life insurance expert here on Wise Bread, always happy to help you out. Until next time, take care.