How Much Term Life Insurance Do You Need?

It's Brian Preston, the money guy. Bart, out on YouTube, he asks, do you have a percentage rule on how much term life insurance to buy? He says, I know that Ramsey says eight to 10 times your salary, so we were talking about how much we love term life. Do you have any other guidelines on that? Oh, I think where Dave and the Ramsey Solutions, the 10 times is a pretty accepted standard. I always add a little bit extra to it when I'm thinking about term life insurance because it's so affordable. You're gonna see, because it's really one of those things, and it's a good exercise of data gathering. In addition to 10 times your income, I want you to write down what debts do you have that if you pass away tomorrow that you'd be worried about leaving your loved ones with. That's your mortgages, student loans, and it's hard to get rid of those debts and so forth. Pay attention to the debts you have, and then also pay attention to what life goals you might have that are important. A big one that comes to my mind is educational funding goals for your kids. If you have children, you not only wanna be thinking about replacing their income that you generate so that they can actually reach a lot of their life goals, but you also wanna make sure that some of those specific goals like education are funded as well. So that's what I would add to the eight to 10 times your income is also pay attention to some of those funding goals. I agree with that fully, and I think it changes through time. I think early on, when you're in the early parts of your career, early parts of your life, I think that eight to 10 times is really, really good. It's only after you begin having some clarity around those other things. Because I see people all the time right now, you know, a newlywed couple will be like, hey, I know, I've listened to the show, I gotta go get 10 times my income, and then we're thinking about having three kids, and we wanna be able to put those three kids through college and I gotta go get this and I gotta get, it's really easy to buy term insurance assuming you're healthy, up until you get really to around age 40. So it's okay if you buy the eight to 10 times in your early 20s, and then as you start having a family, as you buy the bigger house, as you have the other obligations, you can bolt on policies. It's not like something you have to get 100% right at the very first insurance policy you buy, because your income's gonna change, your life circumstance is gonna change. Eight to 10 times is great, and then exactly what you said. Then you start adding in that other stuff as life moves on. Well, I like the point you make there, Bo, is that just like you have a laddered CD strategies and other things, you can have a laddered insurance strategy where your life doesn't have to be, because you hear about, you get to a point of self-insurance. It doesn't have to be an all or nothing, because not many things in life are all or nothing. It's not like you cross 50 and you reach a point of financial wealth and you go, well, I can drop them all to zero. No, it's great, especially because we realize term insurance can be 20 year, 25 year, 30 year, it can be 10 year. You can actually buy the term for the goal, so maybe the first, oldest child graduates college. Maybe that policy fell off because 20 years is now gone. You can, it's okay to let that policy go away, but you're also not completely naked because you might have another policy that you bought afterwards when that third child was born. So Bo's exactly right. You can have a laddered strategy as life goals change, as life changes, maybe you bought additional policies. Think about the fact, I bought my first life insurance term policy when I think I was 24, 25 years old. My income at 25 is completely different than it was at 35, so I love the thought that you can evolve and add more, as you said, bolt on throughout the process. Again, I think it's important to realize it's a good thing to not use life insurance. I want to say that again. It's a really good thing to not die prematurely. That's a positive thing, because I see a lot of 25 year olds say, man, I don't want to buy term insurance. I'm going to be here at 45. I'm going to go and buy permanent insurance. That way I can start investing in something. Now, if you just run the analysis, look at the premium for permanent insurance, premium for term insurance, take that difference, invest it over that 20 year period, I feel highly convicted you would be better off buying the term and investing the difference. But by all means, run the math yourself. Don't let yourself trick yourself into making a suboptimal decision because of false logic. Well, I always say, what are the life insurance companies doing with that extra money? Doing exactly what you could do on your own. They're investing it.