If a child, a spouse, a life partner, or a parent depends on you and your income, you need life insurance. – Suze Orman
The above quote is simple and straightforward. But, at the same time, it is cautionary advice that we should all heed. Life insurance is a topic we might overhear our parents discuss. As we mature and find our way into the labor force, it may again present itself as part of our workplace benefits package. If you marry and plan to welcome children, the topic of life insurance will likely resurface. Today our goal is to examine how much life insurance you need and why you should take responsibility for your life insurance.
Understanding life insurance, a refresher course:
Over the past few years, our John Bailey Company team has published posts that dealt with general overviews of life insurance considerations.
If you have some time, consider reviewing these posts. Each is about a ten-minute read and we’re confident the items discussed remain pertinent and will assist you on your quest to insure a great life.
Secondly, calculate how much life insurance you need
Have you ever heard of the DIME formula, sometimes referred to as the ‘DIMEF’ test or analysis? We discovered this formula while researching how you can take responsibility for your life insurance. Keep in mind that every case is different and that this is just a starting point. A licensed life insurance agent can assist you in this analysis. In November 2018, NBC News published an article “How much life insurance do I need?” The author Nicole Spector discussed the DIMEF test – Debts, Income, Mortgage, Education, and Funeral Expenses. Spector’s article mirrored a NERD Wallet article with the same title from July 2017. They presented the DIME formula and encouraged consumers to consider the following items to calculate life insurance needs:
Debt and final expenses: Add up your debts, other than your mortgage, plus an estimate of your funeral expenses.
Income: Decide for how many years your family would need support, and multiply your annual income by that number. The multiplier might be the number of years before your youngest child graduates from high school. Use this calculator to compute your income replacement needs.
Mortgage: Calculate the amount you need to pay off your mortgage.
Education: Estimate the cost of sending your kids to college.
No doubt, this is a lot to consider! But where you live also impacts how you need to take responsibility for your life insurance.
Next, understand how your income level plays a role…
Just this month, we happened upon Business Insider’s “Here’s how much life insurance you need at every income level.” They offered three scenarios for a 35-year-old married person with a median-priced home, two children, an employed spouse, investments and savings. Of the three cities, Dallas, TX, has the lowest cost of living and is geographically closest to our home city of Knoxville, TN. In Dallas, this is how the estimates would run:
Finally, meet with your insurance agent
In 1946, the John Bailey Company made a promise to offer our clients integrity, service and expertise. We represent some of the most reputable insurance companies in the industry. Our customer service driven team of licensed professionals serves as your biggest advocate. We work to provide unbiased advice about policy options and to find innovative solutions to suit your budget and your coverage objectives.
It is important to understand that you have choices. We will explain whole life, term life and universal life. Additionally, we will clarify the advantages of considering your life insurance needs while you are still young. In closing, honesty is the best policy when discussing your health, medical conditions, and life habits. Let us help you insure a great life.