How Much Life Insurance Do You Need? Here’s What Dave Ramsey Says

You don’t want to sell yourself short on coverage.

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Key points

• The amount of life insurance you need might differ from the amount someone else requires.
• Dave Ramsey’s suggestion for figuring out how much life insurance to get only requires a simple calculation.
• Ramsey recommends getting enough insurance to cover 10 to 12 times your annual income.

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Buying life insurance is sort of a balancing act. Purchase too little coverage, and your loved ones could end up struggling financially in the event of your passing. Purchase too much coverage, and you risk a scenario where your premiums become unaffordable. And if you have trouble paying your life insurance premiums, you might end up having to let your policy lapse, leaving you with no coverage at all.

Making things even more complicated is that life insurance salespeople will often try to upsell you on coverage — for example, they might suggest a $1.5 million death benefit when you really only need $1 million. So how can you determine how much life insurance to buy?

There’s no single formula to use when it comes to calculating life insurance coverage. But financial expert Dave Ramsey has some guidance.

Guidance you can follow

Ramsey likes to see consumers take control of their finances. He routinely warns of the danger of credit cards and puts out plenty of advice designed to help consumers break the cycle of debt.

Ramsey is also a believer in the importance of life insurance. And he specifically recommends getting a term life policy, as opposed to a whole life policy.

Whole life insurance covers you permanently, whereas term life insurance runs out after a preset period of time. But whole life insurance can be extraordinarily expensive, and if you go for that type of policy, you might fall behind on your premiums, leaving you with no coverage whatsoever at some point.

Ramsey’s simple calculation

Within the context of a term life policy, Ramsey recommends buying insurance to cover 10 to 12 times your annual income. This means if you earn $100,000 a year, you’d want your insurance benefit to equal $1 million to $1.2 million.

Now at first, that may seem like a lot. But remember, the purpose of life insurance is to ensure your loved ones can cover their expenses in your absence. If you buy insurance that replaces your income for only a handful of years, that may not do the trick.

Let’s imagine you’re a family of two parents and three young children, and you’re the sole breadwinner. If you were to pass away, your spouse wouldn’t necessarily be able to resume full-time work right away. And so having enough insurance to cover 10 to 12 times your salary would give your spouse the option to continue focusing on raising your children without having to worry about going out and finding a job.

Apply sooner rather than later

Although term life insurance can be more affordable than whole life, it’s still important to do what you can to keep your costs down. And applying when you’re on the younger side is a good bet. The younger you are, the healthier you’re likely to be, and that could lead to lower-cost premiums — premiums that make it possible to secure enough coverage for true peace of mind.