The Life Insurance Rule

Fundamentals of Market Investing by Adam J. McKee

Financial websites commonly offer the rule that you need ten times your annual salary in life insurance.  That is patently ridiculous.  To put it bluntly, life insurance is designed to replace your income if you die.  If you do not have a spouse and children, all you need is a burial policy.  If you do have a spouse and children, then you need to consider your lost income as the key metric of how much life insurance to have.  If you are young and have three small children, you need a large amount of insurance.  If you are about to retire and your children have careers and children of their own, then you don’t need any life insurance at all.  It will take a little extra time, but you should project the needs of your family over time and decide, based on facts and numbers, what you actually need.  Life insurance is not for building a legacy; use your investments for that purpose.

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Last Updated: 6/25/2018

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