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How Much Life Insurance Do I Need?

“How much life insurance do I need?”

This is a common question. For those who are financially responsible for others, this is an important question. Though we know we will all eventually die, no one knows exactly when their life will come to an end. Life insurance can provide significant financial protection for your loved ones should something unexpectedly happen to you. As the Bible says, “A good man leaves an inheritance to his grandchildren, but the sinner’s wealth is stored up for the righteous” (Proverbs 13:22).

But how much do you need? I recommend using the DIME method. DIME stands for Debt, Income, Mortgage, and Education. Each category has its own amount attached to it.

Debt. This amount includes all outstanding debt (other than your mortgage) and any funeral expenses. This ensures that credit card debt, student loan debt, and car loan debt do not become the full responsibility of your loved ones. In a hypothetical scenario, a person or couple with a $4,000 credit card balance, $15,000 in student loans, a $6,000 car loan, and an anticipated $10,000 funeral expense would need $35,000 for this category.

Income. This is the amount of income you will need to replace if you die. I recommend a minimum of 10x your annual salary to care for your loved ones and limit a change in their standard of living. In our hypothetical scenario, let’s assume a person is making $80,000 per year. Therefore, the minimum amount for this category is $800,000.

Mortgage. Assuming you have not accomplished Milestone 7 yet, this amount is whatever is left on your home mortgage. For our hypothetical scenario, we will assume a mortgage balance of $250,000. This is the amount that should be included in the coverage.

Education. If you have children, this amount covers their future college expenses. Understandably, it can be difficult to know the exact amount required in the future. Therefore, I recommend a conservative estimate of $100,000 per child. This should cover a four-year college. Hypothetically, let’s assume a person has three children. Therefore, the amount for this category would be $300,000.

Now, let’s add up our hypothetical scenario:

Debt: $35,000

Income: $800,000

Mortgage: $250,000

Education: $300,000

Therefore, the total coverage amount would be $1,385,000.

When looking for life insurance, I recommend term insurance. Term insurance is very straightforward, covering a specified number of years. Make sure the term you choose carries through the anticipated college graduation date of your youngest child.

Death is not always a fun topic to discuss, but it is inevitable. So, care for your loved ones by leaving an inheritance, ensuring that their financial future is protected.


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