YouTube Review: Why You Need 10x Income in Life Insurance - Dave Ramsey
Why You Need 10x of Your Income In Life Insurance
Dave Ramsey, an expert with Life Insurance Policies says that you need 10–12 times your yearly income in term life insurance. When that money is invested well, your family can live comfortably on the return of that investment. For many people, a 20-year term is just right.
According to Dave, you should always buy 10–12 times your income in life insurance coverage. That small policy you can get through your workplace (which might be one year’s worth of coverage) just isn’t going to cut it. If you’re the main source of income for your household, then your family is relying on you to provide for the important stuff: food, shelter and everything in between. If something happens to you, the last thing you want is for them not to have enough to live on.
By making sure you have the right life insurance policy, your loved ones won’t be forced to make huge changes (like sell the house to make ends meet) and can keep going until they figure out next steps. Dave recommends putting the life insurance payout into an investment fund so your family could earn a rate of return that replaces your lost income, giving them much-needed financial security. And don’t forget to get coverage for both spouses. Even stay-at-home parents need term life insurance. Calculate how much coverage they need by estimating what their hard work costs per year (childcare, education, household duties, etc.). Take that total and multiply it by 10 to 12.
We’re all about saving money. And you might be trying to save a few dollars by choosing shorter term coverage. But what happens if you buy a 10-year policy and have medical issues down the road that raise the cost of your next plan—or worse, make it so you can’t get coverage at all? That will cost you even more in the long run.
Dave’s general rule of thumb is to buy based on when your kids will be heading off to college and living on their own. If you’re in your 20s and plan on having children over the next several years, then a 30-year plan might make sense for you. If you have a few kids in the house and don’t expect any more, then a 15- or 20-year plan would be a better option.
Make sure you have enough term life insurance to take care of your changing needs. Maybe you had a child, bought a new home, got a raise at work, quit smoking, or had some other health improvements. These life-changing events can either help you save money or require additional coverage.
Life insurance is a major part of a healthy financial plan, and the right type of life insurance makes all the difference. That’s why you shouldn’t put off buying term life—or you could find yourself in a financial hole one day.