How much term life insurance do I need?

Getting the best deal on a Term Life Insurance policy is all about striking the right balance between need and affordability. Otherwise, you could end up overbuying or underbuying. Insurapply’s life insurance coverage estimator can help you understand how much life insurance to buy based on your household ages, income, debts, expenses, and budget. The overall goal of life insurance is to help the family in the event of a traumatic loss and provide enough financial support that your loved ones have options moving forward.

How to Choose the Right Term Length for Life Insurance

If you’ve already settled on Term Life Insurance, rather than Whole or Permanent Life Insurance, then you’ll need to choose the term length of the plan, which is generally 10, 15, 20, or 30 years. To do this, consider how long your family will need your income to cover living expenses, pay off any substantial debts, and to provide for your children through college and into early adulthood.

You may also consider these common life scenarios and term choices:

  • 10 Year – The most affordable Term Life Insurance policy can provide a safety net for the near future if you have taken on new obligations or expenses. For instance, maybe you refinanced the mortgage and extended the term or bought a second home. Or perhaps your teenager going to college decides on grad school, too. Should the need arise, you can always shop for another policy when this one ends, though the premiums will go up due to your increased age and changing health profile.  
  • 15 Year – Sometimes, you just need a little extra security during a costlier phase in life, whether you’re paying for elementary-age children, care-giving for aging parents, paying off the house, or covering the retirement gap for your spouse.
  • 20 Year – This is the most common choice for people in their late 30s to early 60s, as it provides just enough time to cover younger children to adulthood, finish paying off the mortgage, or reach that golden retirement distribution. It’s not the longest term length you can buy, but it is the most popular term length because of the combination of term length and affordability.
  • 30 Year – While it may be the most expensive of Term Life Insurance plans, it also provides the longest safety cushion, which is ideal for newlyweds, new home-buyers, breadwinners, or parents of very young or special needs children.

How to Choose the Right Amount of Coverage for a Term Life Insurance Policy

Term Life Insurance policies range from $100,000 to over $30 million, though most minimums start at $100,000 and increase by $50,000 from there. There is no hard and fast rule when it comes to how much life insurance to buy, but you may employ the following approaches to choose the correct amount of coverage for your family:

  • The 10 Rule – Looking for an easy rule of thumb? Simply take your annual income and multiply it by 10. This was the industry standard for years. Yet, it does not account for every situation. For instance, having four children would require more savings than having one child. Also, it will likely provide inadequate insurance if you’re the sole breadwinner and your partner is a homemaker.
  • The DIMEF Formula – Ready for a more realistic assessment? First, add up all the Debts you owe – car loans, credit card balances, everything except housing. Next, think about how many years of Income the family would need, multiplied by your annual salary. Add in the amount left on the Mortgage. Add on the cost of Education for each child (for instance, private school or college tuition). Lastly, add the expected Funeral and burial expenses. If your partner doesn’t work and you have dependents, double the number to ensure the children would be provided for should something happen to both parents. 
  • The LIFE ApproachWant to not only replace your income after you’re gone, but provide your family with substantially more funds than you currently provide? Plan on carrying at least 5x your annual income, plus enough to pay for 100% of your debts. You might consider Liabilities and debts, Income to be replaced, Final Expenses, Education or Extra goals you want paid for. Don’t forget to subtract your family’s accrued savings and assets, and also subtract any current life insurance purchased through an employer to avoid overbuying.
  • The Shortfall Calculation – Think about the annual income you’d want to leave your family for X amount of years. Then subtract other sources of annual income, such as retirement funds, pension, savings accounts, your spouse’s salary, and Social Security. The remaining number is the shortfall you’d use life insurance to replace.

Insurapply makes it simple and quick to compare Term Life Insurance policies. First, try our free life insurance calculator to determine how much coverage your family needs. Next, get fast, free term life insurance policy quotes from leading providers. With Insurapply, it’s easier than you thought.

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