When it comes to buying life insurance, should the coverage amount be based solely on current earnings? I have good reason to believe my income is going to increase significantly soon.
The purpose of life insurance is to take care of your family if something unexpected happens to you. You don’t want to buy too much, but you should have enough to ensure that they’re well taken care of when you’re not here any longer.
I usually recommend people have 10 to 12 times their annual income in a good, level term life insurance policy. However, if you have a solid reason to believe your income will be jumping significantly soon, there’s nothing wrong with basing your coverage amount on that figure—if you can afford it, of course.
Understand that when I say, “solid reason,” I’m not talking about a hopeful attitude. I’m talking about something along the lines of finishing a medical residency, then making the jump to a six-figure income. That’s the kind of logical thinking and planning I’m working with here. In that scenario, or something similar, a huge jump in income is virtually assured.
Great question, Wesley!
* Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 16 million listeners each week on 600 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.