How much life insurance do I need?
"If I remember the information in ""The Wealthy Barber"" correctly, he said: And as someone once said to me, ""make sure you're worth more alive than dead!""  :-)" After some thought, I follow Dave Ramsey's advice because it's simple and I can do the math in my head - no online calculator needed. :) You need Life Insurance if someone depends on your income.   You can replace your income with a single lump sum of 8-10 times your current income where those who need your income, can get roughly your salary each year from the life insurance proceeds. "Life Insurance can be a difficult decision.  We have to first assess the ""want"" for it vs. the ""need"" for it, and that differs from person to person.  Any Life licensed agent should be happy to do this calculation for you at no cost and no obligation.  Just be sure you are well educated in the subject to make sure they are looking after YOUR needs and not their wallets. For the majority of clients, when looking at ""needs"" we will be sure to look at income coverage (less what the household needs with one less body) as well as debt coverage, education costs etc.  More importantly make sure you are buying the RIGHT insurance, as much as the right amount." One simple calculation to determine your life insurance need: D.I.M.E. method D: Debt All your car loan balances, credit card balances, student loans, business loans, etc. I: Income Your annual income times 10 (for 10 years of income replacement). M: Mortgage Your home mortgage balance. E: Education Your children's education expenses. You add up all these items, and you'll come up with a proper amount of life insurance coverage. This should be sufficient model for a majority of people. Yes, your life insurance needs will change as you move through life. Therefore you should sit down with your life insurance agent to review your policy every year and adjust it accordingly.
I've had many home loans, and all have been sold to a big bank.  They have certain rules about how much insurance you need to have, but I've never had one buy insurance on my behalf - they always send letters telling me I need to increase the insurance.  They do say that if I don't get enough insurance, they will do it for me, but this has never been necessary. "Note: this answer was provided when the question was only about Life Insurance, therefore it does not address any other ""benefits"" Term Life Insurance is very easy to evaluate, once you have determined how much you need and for how long. For significant amounts of coverage they may require a physical to be performed. The price quotes will be for  two levels of health, so you can compare costs from many companies quite easily.  You have several sources in no particular order: employer, independent company, 3rd party like AARP, AAA, or via you bank or credit union. Note that the 3rd party will be getting a cut of the premium. Also some choices offered from the employer or 3rd party may be limited in size or duration. The independent companies will be able to have terms that extend for 10 years or more. So view the insurance offered by AARP as just another option that has to be compared to all your other options." Or we could allow market forces to work:   My suggestion woudl be to outlaw price descrimination (charging different people different rates), force providers to disclose prices publicly, and discourage patients from paying everything through a middle man type insureer and purchase more services upfront. We coudl then institute a national catastrophic insurance to trigger in life/death situations and we could then reimburse lower income people later with a government program; *but the amount of reimbursement needs to be hidden from the service provider,* because if they know how much the patient gets reimbursed, they will just charge more. "The key point to answer the question is to consider risk aversion. Assume I suggest a game to you: Throw a coin and if you win, you get $5, if you lose nothing happens. Will you play the game? Of course, you will - you have nothing to lose! What if I suggest this: If you win, you get $10,000,005 and if you lose you must pay $10,000,000 (I also accept cars, houses, spouses, and kidneys as payment). While the expected value of the second game is the same as for the first, if you lose the second game you are more or less doomed to spend the rest of your life in poverty or not even have a rest of your life. Therefore, you will not wish to play the second game. Well, maybe you do - but probably only if you are very, very rich and can easily afford a loss (even if you had $11,000,000 you won't be as happy with a possible raise to $21,000,005 as you'd be unhappy with dropping to a mere $1,000,000, so you'd still not like to play).  Some model this by taking logarithms: If your capital grows from $500 to $1000 or from $1000 to $2000, in both cases it doubles, hence is considered the same ""personal gain"", effectively. And, voíla, the logartithm of your capital grows by the same amount in both cases. This refelcts that a rich man will not be as happy about finding a $10 note as a poor man will be about finding a nickel.  The effect of an insurance is that you replace an uncertain event of great damage with a certain event of little damage. Of course, the insurance company plays the same game, with roles swapped - so why do they play? One point is that they play the game very often, which tends to nivel the risks - unless you do something stupid and insure all inhabitants of San Francisco (and nobody else) against eqarthquakes. But also they have enough capital that they can afford to lose the game. In a fair situation, i.e. when the insurance costs just as much as damage cost multiplied with probability of damage, a rational you would eagerly buy the insurance because of risk aversion. Therefore, the insurance will in effect be able to charge more than the statistically fair price and many will still (gnawingly) buy it, and that's how they make a living. The decision how much more one is willing to accept as insurance cost is also a matter of whether you can afford a loss of the insured item easily, with regrets, barely, or not all." Not to pick your words apart, but I'm used to the word laddering as used with CDs or bonds, where one buys a new say, 7 year duration each year with old money coming due and, in effect, is always earning the longer term rate, while still having new funds available each year.  So. The article you link suggests that there's money to be saved by not taking a long term policy on all the insurance you buy. They split $250K 30 year / $1M 20 year. The money saved by going short on the bigger policy is (they say) $11K.  It's an interesting idea. Will you use the $11K saved to buy a new $1M 10 year policy in 20 years, or will you not need the insurance? There are situations where insurance needs drop, e.g. 20 years into my marriage, college fully funded as are retirement accounts. I am semi-retired and if I passed, there's enough money. There are also situations where the need runs longer. The concept in the article works for the former type of circumstance. The issue is should you get one large policy or several smaller policies. Multiple polices have flexibility becasue if the need goes away you can drop the policy. The problem with multiple small policies is that there is overhead that you pay for multiple times. Assume that you want 100K coverage and are age x. That policy will cost you a certain amount based on a base amount plus a percentage of the coverage. The percentage is based on age, sex, smoking, health. If you double the coverage the price doesn't double becasue the base amount is constant. This base amount covers the cost of setting up your policy and maintaining the records and billing.  Keep in mind that the coverage you are asking about is not the mortgage insurance the lender makes you purchase when you have a small down payment. You are asking about a policy to cover your debts and still provide money for survivors. Go with your current agent company and ask them to run the numbers: new additional policy, increasing amount of current policy. Go with what meets your needs. Buying a house is one of those life events where you should review your insurance and retirement needs, and adjust accordingly. To one extreme, there's term. Aside from the commission, the premium is buying insurance and that's it. But when the tax and math wiz guys started to get together, they were able to use insurance as a wrapper to create products that might have some tax benefits. Whole life created a product that had an investment component which was able to pay the ever increasing premium costs. To the other extreme, there are variable annuities with a fixed $20/mo mortality fee which on a large valued account can be a tiny fraction of a percent of the funds invested. In effect, it's not an insurance product, but an investment, one that wrapped in a very thin insurance veil to keep it away from certain security regulations. This is likely the product you are being offered, or some variation of it. Firstly, make sure annual income exceeds annual expenses. The difference is what you have available for saving.  Secondly, you should have tiers of savings. From most to least liquid (and least to most rewarding): The core of personal finance is managing the flow of money between these tiers to balance maximizing return on savings with budget constraints. For example, insurance effectively allows society to move money from savings to stocks and bonds. And a savings account lets the bank loan out a bit of your money to people buying assets like homes.  Note that the above set of accounts is just a template from which you should customize. You might want to add in an FSA or HSA, extra loan payments, or taxable brokerage accounts, depending on your cash flow, debt, and tax situation.