There’s a certain amount of life insurance that you need. Then there’s a certain amount you can afford. Most insurance agents tell you to buy the amount you need. But we believe that’s too much pressure on you.
Instead, you should only buy the amount of life insurance you’re willing to pay for.
Home and car insurance is somewhat tangible. You use and even touch your home and car every single day. But life insurance is just there.
The whole concept of life insurance is whenever you die your beneficiary should invest the money from the life insurance and then only live off the interest. Hopefully, they’ll average a 10% return through ups and downs but as long as the beneficiary doesn’t deplete the entire account, the money will continue to grow.
How much life insurance do you need to make this happen? A good rule of thumb is 8-10 times your income.
Let’s say you make $100,000 annually. You need $1,000,000 in coverage for life insurance. Let’s say that’s $50 a month, and that makes you uncomfortable. Think about six months or a year from now. Are you going to be annoyed that you spend $50 every singe month on something you won’t use unless you die?
If that’s the case, tone back the amount a little bit. If you’re more comfortable with $30 a month, and aren’t going to miss that amount, then that’s the number you need to go for. In an ideal world, you would buy as much life insurance as you can afford. But that's not always realistic in the short term. If a couple years down the line, you want to up it a little, then buy more life insurance.
The worst thing that can happen is that you continue to pay $50 a month for two or three years, then get mad or can’t afford it any more, so you cancel it. You’re out all the money and now you have no life insurance.
Our suggestion is to spend as much as you want on life insurance without it becoming a nuisance.