As your life changes, consider what you’ll need to protect your family.
“The only constant is change.” Heraclitus once said that. Everything is constantly shifting and changing like sand or some other amorphous substance. The question is what are we putting in place to make sure we make the most of those changes. You may buy a home, get married, have one child or many—we’re in flux all the time. Which is why it’s important to consider all potential needs. That’s what term life insurance can help with. “But Wysh,” I hear you say to your computer screen. “How much life insurance do I need?” That’s the key question.
This Wysh guide is designed to help you figure out how much term life insurance you should get, methods for figuring that out, and smart tips throughout the term life insurance policy process.
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- What does term life insurance cover?
- How much life insurance should I get?
- Methods for calculating the right amount of coverage
- The right term life insurance coverage for you
- TL; DR
What does term life insurance cover?
Life insurance is a contract between you (i.e., the policyholder) and an insurance company. That contract (i.e., the policy) guarantees a death benefit, or a lump sum of money, that will be released to your beneficiaries should you die during the length of the contract period. Basically, if you die during the contract, people who are financially dependent upon you will receive money from the insurance company. Of course you have to keep your policy in good standing by keeping up with your premiums, the cost of which can be determined by things like your age, gender, and health (among other factors).
Average term life insurance policy
Term life insurance can cover a good amount of needs, both immediate, like peace of mind, and long-term at budget-friendly rates. For example, a 30yo man with a 20-year term life policy with a coverage amount of $500,000 could pay, on average, $246 per year. That $500,000 coverage could go toward tackling final expenses, medical bills, other forms of debt and even start setting up their loved ones with much needed financial relief.
The reality is that death can be a huge financial shock in addition to the standard shock it can bring. According to the National Funeral Directors Association, the average cost of a funeral with a viewing in 2021 was $7,848. 23.8 percent of all residents within southern states had significant amounts of medical debt as of 2020. Collectively, Health System Tracker found that nearly 1 in 10 adults in the US owe significant medical debt. Include other common forms of debt that hamper Americans, and the protective quality of term life insurance comes more into view. Considering that it’s not uncommon for families to be in financially precarious situations, having the right coverage is important.
How much life insurance should I get?
The amount of coverage you should look into depends on your unique needs. Whether you want to use coverage solely for final expenses, to protect your loved ones in the event of a tragedy, or as a method of securing generational wealth, a term life insurance policy is a tool that you can direct. That tool should be used for specific use-cases.
In addition to debts, here are some areas you can think about when considering coverage amounts. These areas are things like education, mortgage, income replacement and generational wealth.
If you have children or are considering having kids, thinking about current and future educational costs is important. In most US states, childcare costs are often more than university tuition. The average cost of childcare nationwide is $14,760 per year. This cost doesn’t include things like extracurricular activities like sports, family vacations, or just the general cost of having a child.
A term life policy can go a long way to helping cover a current or potential mortgage. At the time of writing in mid-2023, the average new mortgage payment is $2,317 per month. With a mortgage comes home ownership, which means you’ll also be covering the myriad of costs for repairs and maintenance, as well as HOA fees.
Term life insurance can help replace income as well. The right coverage can help your loved ones continue paying off bills, debts, and costs without having to coordinate with each individual lender. Even if you don’t have kids or a mortgage, this can be incredibly helpful. For example, if you live in an apartment, it may be difficult for your roommate(s) to continue to pay rent in your absence.
Term life insurance can also be used to create a bit of generational wealth. Death benefits are often non-taxable, which means that the right amount of coverage can leave behind some money for kids, grandkids, or whomever funds for them to meet any kind of goals. While addressing costs is a great use of term life insurance, setting your policy up to leave some extra money can work as an amazing gift to your loved ones.
Methods for calculating the right amount of coverage
There are a couple of methods that experts suggest. Consider each one and see which works best for you. Alternatively, you can utilize each method to figure out which one is best for you. Together, you may have a more comprehensive plan going forward to attain coverage.
Multiply your salary
Some experts suggest that you can multiply your salary by five-, seven- or even ten-times to determine the right amount of coverage. This isn’t so much a hard-and-fast rule. It’s more of a guideline. But it can be helpful when you want to start somewhere.
Multiply your salary + $100,000 for college
The average cost of an in-state 4-year university comes to $102,828. Like the previous, this too is a rule of thumb with a focus on university tuition. However, the cost is determined for public institutions. Private universities come with higher costs, around $214,004 over 4 years. Talk with your loved ones about potential university attendance and whether you should adjust your coverage projections.
“How much life insurance do I need” calculator
Term life insurance calculators can be found all over the internet. They take information like your income, debts, future college costs, funeral needs, savings and other areas to calculate a coverage amount for you. Various agencies and publications offer such calculators if you’re interested. It’s important to remember that you may get different results with different calculators. Shop around to compare prices, results and coverage amounts.
The DIME method
DIME stands for Debts, Income, Mortgage and Education. With this method, you add up the four areas, the total of which should give you a nice well-rounded figure without having to get too into calculations. For example, figuring out which debts would be left to loved ones, plus your income, mortgage and suspected education costs lets you have a pretty decent snapshot of your financial situation.
The Wysh Builder
This is Wysh’s free tool to determine potential coverage. Our Wysh Builder tool helps you visualize your needs in a unique and interactive way. You can add or subtract your financial wyshes, giving you an observable aspect of your potential coverage amount. The best part about the Wysh Builder (aside from the fact that it’s really cool) is that it’s totally free. You can play around with it and craft the perfect policy for you.
The right term life insurance coverage for you
There are a variety of ways to calculate the right amount of coverage. You can multiply, use DIME, our free Wysh Builder tool—you’ve got options. Give one of the above a shot. If you’re still asking yourself, “how much life insurance do I need?” then try another one. We can say that, at Wysh, our term life insurance policies are flexible. That means that, if you find out the coverage you have isn’t enough, you can adjust it so that it better fits your needs. However you choose to determine coverage, what’s important is to start. The best time to start, oddly enough, is right now.
- Term life insurance can cover final expenses, debts such as medical bills, as well as future education costs, mortgages, income & even provide a path to generational wealth
- 1 in 10 adults owes significant amounts of medical debt.
- The average cost of a 20-year term life policy for a 30-year old man with $500,000 in coverage comes to $246 per year.
- The average cost of an in-state public university comes to $102,828 over 4 years.
- You can multiply your salary by five-, seven- or ten-times (or any number you’d like) to calculate a type of coverage
- The DIME method stands for Debts, Income, Mortgage, and Education and can be a great way to start thinking about your coverage needs
- The Wysh Builder tool is a free and fun way of visualizing your financial needs so that you can craft a policy that’s perfect for you and your needs