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Q: How Much Life Insurance Do I Need?

2011 December 12

The first thing to make sure of is if you need life insurance at all.  Many agents try and sell life insurance for a multitude of reasons unrelated to family protection. Dave Ramsey recommends life insurance when an individual or family has debts that cannot be paid from their current assets and if a wage earner or stay at home parent was to die and there is a need to provide an income for those financially reliant upon them. Otherwise he feels there are much smarter things that you could do with your money. If you have dependents that are financially reliant upon you or debts that would not be paid from your estate then there is a need for life insurance. This is why Zander Insurance only offers Term Life Insurance plans because it’s the best value for pure protection.

As a starting point Dave typically recommends that families carry an amount of life insurance equal to 10 times their income.  This level of protection will generally allow for a continuation of the financial lifestyle for the remaining family members and allow debt related issues along with education funding, emergency needs, and final expenses to be addressed. You can adjust the multiples based on your personal situation and reduce or increase based on those specifics. For example, if you are single then your primary concern would be the amount of debt your estate would be responsible for and a multiple of 10 times is usually too much. If, however, you have young children and significant debt, then this higher amount would be appropriate. Any of our team members at Zander Insurance can help you further determine your specific insurance needs.

Additionally, Dave only recommends guaranteed level term life plans and tends to lean toward the 15 or 20-year plans.  He feels that you can accomplish very significant financial progress over 15 to 20 years so that you greatly reduce (and eventually eliminate) the need for life insurance.  At younger ages if you are planning a family or have younger children then considering a 30-year plan is OK, since it allows more time as long as the additional cost does not strain your budget too much.  However, as you get older the cost difference of the 30 year plan increases and does not represent as strong a value.  At older ages, a 10-year plan may work if you have eliminated debt but are still working on growing your savings to make sure a surviving spouse’s financial lifestyle will not change. This is why Zander Insurance only offers level term life insurance plans.

Lastly, if for some reason the 10 to 12 times your income in coverage is not within your budget, Dave’s first advice is to lower the death benefit to an amount that would still provide financial protection – something you can get by on for the near future while trying to address the reasons for the higher cost.  You can also shorten the level guaranteed period to a 10-year term and increase the coverage amount. It depends on your debt and savings situation as to whether a lower face amount or a shorter term period is the most beneficial, cost wise.

You can compare rates online at Zander Insurance or call Zander Insurance at 800-356-4282 for personal assistance.

One Response leave one →
  1. zanderins permalink*
    October 17, 2012

    I would recommend visitinng our website and clicking on the “Insurance Tips” section as well ss the “Term vs. Cash Value” link which will provide additional information.

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