Confused about the life insurance you need? Here’s exactly what Dave Ramsey recommends

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Life insurance is too important to be without careful consideration.

Key Point

• Life insurance is an important purchase, as surviving families may rely on a death benefit to cover their necessities after an untimely death.
• Dave Ramsey offers some tips on which coverage to buy.
• He recommends term insurance worth 10 to 12 times the policyholder’s income.

When purchasing life insurance, it is important to have sufficient coverage to provide the protection your surviving loved ones need. But figuring out exactly how to do that can be complicated.

For consumers struggling to decide which insurance to buy, financial expert Dave Ramsey details the types of insurance most people should buy. Here’s what Ramsey had to say.

Life insurance recommendations

Ramsey detailed the type of life insurance he recommends, the length of time he thinks is best, and the amount of death benefit he thinks most people need.

“I can’t say enough. I recommend buying term life insurance that has a term of 15 to 20 years and covers 10 to 12 times your income,” says Ramsey.

Term insurance is an alternative to whole life insurance. Whole life insurance is valid indefinitely as long as you continue to pay premiums, as opposed to a limited period of validity. Coverage terms typically range from 10 to 30 years or more, but Ramsey specifically proposes policies that provide coverage for 15 to 20 years.

Ramsey’s advice on choosing policies that cover 10 to 12 times the policyholder’s income also refers specifically to death benefits. The amount paid to the beneficiary if the policyholder dies during the policy period. So, for example, someone whose annual income is her $50,000 buys her $600,000 insurance from $500,000.

Is Ramsey correct?

Ramsey is absolutely correct that term life insurance is the best option for most people. But most people don’t need unlimited coverage, and whole life insurance isn’t a great investment because it usually yields lower returns than many other options.

However, the appropriate coverage period and amount will depend on the specifics of your individual situation. Usually, the best way to determine how long coverage will be in effect is to consider how long no one will be dependent on the policyholder’s income. Therefore, it is advisable to keep life insurance, for example, until the child goes to college and until retirement, when he will not have an income in any case.

Although 10 to 12 times your income is the customary recommended death benefit amount, it may be more accurate to use a formula called the DIME formula. By following this formula, policyholders can purchase sufficient coverage to:

• Repayment of outstanding debts (D)
• Replace Desired Years of Income (I)
• Pay off the outstanding mortgage balance (M)
• Payment of child’s education expenses (E)

It’s a bit more work to use this formula than buying the amount of compensation that Ramsey recommends, but his numbers aren’t as accurate, and if you have a lot of kids to educate, or a person has a lot of may result in undercompensation. of debt.

But in general, Ramsey gets some good life insurance advice.