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Q: How Much Term Life Insurance Do We Need And What Time Period Should We Buy?

2011 December 16

Dave Ramsey recommends term life insurance when an individual or family has debts that cannot be paid from their current assets and if a wage earner was to die and there is a need to provide an income for those financially reliant upon them. Otherwise he feels there are much smarter things that you could do with your money. Per Dave’s advice, Zander Insurance only offers guaranteed level term life plans. Dave tends to lean toward the 15 or 20 year plans since you can accomplish very significant financial progress over this period so that you greatly reduce and eventually eliminate the need for life insurance.  At younger ages he does feel that considering a 30 year plan is OK since they allow more time and are useful if you are just starting out your family. However, as you get older the cost difference of the 30 year plan increases and does not represent as strong a value.

Additionally, Dave typically recommends that families carry an amount of life insurance equal to 10 times their income.  This level of protection will generally allow for a continuation of the financial lifestyle for the remaining family members and allow debt related issues along with education funding, emergency needs, and final expenses to be addressed. You can consider “laddering” policies and purchase numerous policies with different level term periods to address the different types of debt and savings/earning potential that you have.  The key to be careful of is not to go too short on the level periods overall, such as all on a 10 year plan, since the costs of these plans increase substantially at the end of the level periods.  It is generally advised to buy a slightly longer period, especially if the premium does not go up that much, to create a bit of padding.

If for some reason the 10 to 12 times your income in coverage is not within your budget, Dave’s first advice is to lower the death benefit to an amount that would still provide financial protection – something you can get by on for the near future while trying to address the reasons for the higher cost.  You can also shorten the level guaranteed period to a 10-year term and increase the coverage amount.  It depends on your debt and savings situation as to whether a lower face amount or a shorter term period is the most beneficial, cost wise.

You can compare rates online at Zander Insurance or call Zander Insurance at 800 -356-4282 for personal assistance.

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