Term Life Insurance: How Much Is Enough?

If you have a spouse who relies on your income, a mortgage that requires your salary, or children whose care depends on what you earn - you need life insurance. If none of those things are true, your need is limited.

• Term life: Covers you for a fixed period (10, 20, or 30 years). Pays a death benefit if you die during that period. Simple, inexpensive, easy to understand.
• Permanent life: Covers your entire life and includes an investment component. More complex, significantly more expensive, and investment returns inside these policies are generally inferior to buying term and investing the difference.

The bottom line

For most families with dependents, a mortgage, and income others rely on: term life is the efficient solution.

The quick rule of thumb: 10-12x your annual income. A more precise calculation: (1) estimate years of income replacement needed, (2) multiply by current income, (3) add mortgage balance and other obligations, (4) subtract existing assets.

A healthy 35-year-old can get $1 million in 20-year term coverage for $50-$80/month - sometimes less. The same coverage purchased at 45 costs roughly 2-3x more. The premium is locked for the term.