Dave Says: How Much Term Do I Need?

Dear Dave,

Should term life insurance be purchased based on your current earnings or future, projected earnings?

Dan

Dear Dan,

I usually recommend people have 10 to 12 times their current annual income in a good, level term life insurance policy. However, if you have a solid reason to project your income jumping significantly in the near future, there's nothing wrong with basing your amount of life insurance coverage on that figure—as long as you can afford it.

Now, when I say a solid reason, I'm not talking about having an attitude of, "I'm smart. So, I'm going to make tons more money soon." That's ego, not reason. But if you're in a residency finishing your medical degree, you can realistically look at making $40,000 to $50,000 for another year or two then making the jump to $200,000. That's the kind of logical thinking and planning I'm talking about. In that scenario, a huge jump in income is almost assured. There's nothing wrong with going ahead and getting more coverage.

The purpose of life insurance is to take care of your family if something unexpected should happen to you. You don't want to go nuts and buy too much unnecessarily, but you should have enough to ensure that they're well taken care of when you're not around.

—Dave