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There are many factors to consider when deciding how much life insurance you may need. The amount varies depending on your age and health. The following factors should also be considered:
How To Figure Out How Much Life Insurance You Need
If this calculation seems difficult to you, there are other ways to calculate how much life insurance you may need. The above measures do not account for things like higher education for your dependents, but the DIME method does.
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To get the clearest possible picture of how much life insurance you need, use a few different methods to read and speak with a life insurance agent who can help you understand the nuances to different policies.
The DIME formula is another way to calculate how big your life insurance policy should be. To get a better understanding of this number, add all the DIME points below:
Start by consolidating all your outstanding debts. This can include student loans, car loans, any business related loans or credit card loans.
Think about how much money you have made now, and add how many years that money will be needed if your dependents will not be able to rely on you to continue to earn money. If your youngest is 10, you may want to increase your current income by 8 years before your child goes to college. If your spouse is five years away from retirement, you may need to multiply this amount by five to support them in the years before they stop working.
Life Insurance Plans: Types Of Life Insurance Policies
If you have children and want to help them pay for college, add this to your previously calculated income as well.
The DIME method is foolproof and doesn’t take into account assets you already own. However, this formula can give you a rough idea of the life insurance size you would need to pay off your debts and help your family with living expenses if you weren’t around to earn money.
Similar to the income part of the DIME method, multiplying your current income by 10 is another way to determine your life insurance needs without a calculator or insurance agent.
Depending on your lifestyle and real life situation, you can also consider increasing the number from 10 to 15 or more. If you have a lot of dependents, a lot of debt or want to leave your family for a long time, increasing your retirement age and income may be a good idea.
How Much Life Insurance Is Enough?
Monthly life insurance premiums may be different for each individual because these premiums are based on different factors. Insurance underwriters, or those who evaluate how much your premium will cost, calculate factors such as your gender, age, health and the size of any premium you will pay each month.
Your monthly payment will also depend on whether you have term life or whole life. Term life insurance guarantees coverage for a number of years, usually anywhere from 10 to 30 years. When the first period is over, you will have nothing to cover. All life, or eternal life, never ends. Your premiums are usually very high, but these policies can build cash value over time, acting as an investment vehicle.
When considering whether such life insurance is right for you, you may ask, “Is life insurance expensive?” or perhaps, “How much does life insurance cost per month?” The good news is that some life insurance policies are much cheaper than most people think. In fact, 50% of people overestimate the cost of life insurance by three times its actual cost.
While we can’t give you an exact answer without analyzing your unique situation, we can give you a rough estimate of what you might pay based on your gender, age and estimated value of the option. The table below includes the average monthly life insurance premium for a two-year term life policy for a non-smoker in good health.
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If you see outside of the traditional male/female certificate of character, choosing one that you are closely related to will help you get the best life insurance quote. Although many people are now aware of the gender binary, the insurance industry has not yet updated its underwriting practices to accommodate these changes. While your gender plays a role in how much your life insurance will cost, other factors are also taken into consideration when deciding the amount.
People who need life insurance the most are those with dependents, anyone with heavy debt and business owners. If you were to die within the term of your coverage (for long term life), the payout would help pay off any of your outstanding debts and help cover the costs of your business, your dependents or both.
However, these are not the only people who can benefit from life insurance. People with limited savings and no dependents can use life insurance as a way to pay for funeral expenses so that the burden is not placed on the shoulders of loved ones.
Stay-at-home parents can also profit from life insurance even if they don’t earn any money. In the event of an unexpected passing, the surviving spouse can use the life insurance proceeds to cover the cost of child care, housework and other responsibilities that the late spouse used to perform.
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Understanding your life insurance needs doesn’t have to be difficult or overwhelming. By using the term life insurance calculator or the formulas above, you can get a good idea of how much life insurance you would need as an adequate safety net for your loved ones.
When you’re ready to take the next step, talk to a life insurance agent or life insurance company to better understand the types of policies available to you.
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Your web browser is no longer supported by Microsoft. Update your browser for more security, speed and compatibility. Dos and Don’ts of Life Insurance (Top 20) Knowing the dos and don’ts of life insurance before buying a policy is essential to finding the most affordable life insurance. Learn everything you need to know about life insurance and whether term or whole life is right for you, then get life insurance as low as $10.85/mo.
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Laura Adams is one of the world’s leading finance, insurance, and small business authorities. As an award-winning author, speaker, and host of the top-rated Money Girl podcast since 2008, millions of readers and listeners benefit from her practical advice. Her mission is to empower clients to live healthy and wealthy lives by planning for the future and making smart financial decisions. He says…
Jeffrey Manola is an experienced life insurance agent who founded TopQuoteLifeInsurance.com and NoMedicalExamQuotes.com. His role in creating these sites was to provide online customers looking for life insurance with the most affordable term life insurance, permanent life insurance, no test life insurance, and burial insurance. Not only does he try to give customers t…
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Editor’s Guide: We are a free online resource for anyone interested in learning more about life insurance. Our goal is to be an objective, third-party resource for all life insurance related matters. We update our site regularly, and all content is reviewed by life insurance experts.
How Do You Know How Much Life Insurance Coverage You Need?
There are many life insurance tips out there, from understanding your life insurance policy to a child life insurance guide. Some are good, some are bad, and some are designed to sell you a product you may not want.
We’ve sorted through the pros and cons to bring you a list of the top 20 dos and don’ts of life insurance. In it, you will learn the facts about life insurance, what to look for in life insurance, and how to buy life insurance.
If you already know about life insurance dos and don’ts, you can use the free tool above to quickly compare quotes from multiple life insurers at once. Start now.
Before we start, let’s talk numbers. So, how much does life insurance cost? As it turns out, less than you