Jeffrey Wade
Financial advisor Dave Ramsey recommends getting life insurance as soon as possible, as premiums only get more expensive as you age. He suggests buying a term life insurance policy worth 10–12 times your annual income. This type of insurance is more affordable than whole life insurance and provides coverage for a specified term, typically 15–20 years. Ramsey advises against cash value life insurance and riders, as they tend to be costly and offer little value. Instead, he encourages investing the money saved on premiums to build real wealth. The amount of life insurance needed depends on factors such as the number of dependents, living expenses, and income. It's important to regularly review your policy to ensure it aligns with your current life stage and needs.
| Characteristics | Values |
|---|---|
| How much life insurance do you need? | A policy worth 10-12 times your annual income |
| How long should you buy for? | Dave Ramsey recommends a term of 15-20 years. If you plan on having children in the future, a 30-year plan might be suitable. If you have a newborn and don't expect any more children, a 20-year plan is recommended. |
| Who should get life insurance? | Dave Ramsey recommends that both spouses get life insurance, especially if one is a stay-at-home parent. |
| What type of life insurance? | Dave Ramsey recommends term life insurance over whole life insurance. |
| When to buy life insurance? | Buy life insurance as soon as possible as premiums increase with age. |
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What You'll Learn
Dave Ramsey's recommended type of life insurance
Dave Ramsey recommends getting life insurance only for a short period, typically 10 to 20 years, while you have people, such as your spouse and children, dependent on your income. He suggests buying a term life insurance policy worth 10 to 12 times your annual income.
Term life insurance, also known as pure life insurance, is a simple and affordable option. It guarantees a death benefit if the insured person dies during the specified term. The policy has no cash value, and the premium remains level throughout the term, making it a cost-effective choice. Ramsey suggests getting term life insurance as soon as possible because the premiums increase with age. He also emphasizes that stay-at-home parents should have coverage because their contributions to the household would be costly to replace.
Ramsey recommends avoiding whole life insurance, which can be up to ten times more expensive and has varying premiums. Whole life insurance lacks the benefits of term life insurance and adds unnecessary features, such as a cash value account that grows slowly over time. Instead, he suggests investing the premium savings to build real wealth.
To find the best term life insurance policy, Ramsey suggests using a term life calculator to estimate your needs and working with a trusted partner like Zander Insurance. They can shop across top-rated companies to find the most suitable coverage and rates for your specific situation.
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How much life insurance you need
According to Dave Ramsey, the amount of life insurance you need depends on your income and the number of dependents. As a general rule of thumb, he recommends buying a policy worth 10–12 times your annual income. This range allows for some flexibility depending on your unique circumstances.
If you have a higher income, you may want to consider a policy closer to 12 times your annual income. This higher coverage will help maintain the standard of living for your dependents should anything happen to you. On the other hand, if you have a lower income and live frugally, a policy closer to 10 times your annual income may be sufficient.
It's important to consider your living expenses and the number of dependents you have. If you have a spouse and children who rely on your income, you'll need a policy that reflects that. The more dependents you have, the more coverage you'll likely need.
Dave Ramsey suggests that you only need life insurance while you have people depending on your income. He recommends term life insurance, specifically level term life insurance, which offers a flat premium rate for the entire term. This type of insurance is simple and affordable, and it ensures that your dependents will receive a payout if anything happens to you during the term. The term length should be based on when your children will be heading off to college and becoming financially independent, typically ranging from 15 to 20 years.
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When to get life insurance
According to financial advisor Dave Ramsey, you should only get life insurance if you have people depending on your income. He recommends a term life insurance policy worth 10-12 times your annual income, purchased as soon as possible since premiums increase with age.
Ramsey advises against whole life insurance, which can be up to 10 times more expensive and lacks the benefits of term life insurance. Term life insurance is a simple and affordable way to protect your loved ones financially if you pass away. It has no cash value, meaning you are only paying for life insurance and not a slow-growing cash value account. This allows you to invest the money saved on premiums to build real wealth.
The length of your term life insurance policy should be based on your life stage and financial dependents. For example, if you plan on having children in the future, a 30-year plan may be suitable, whereas a 20-year plan might be better if you have a newborn and don't expect any more children. Additionally, it's important to regularly review your policy to ensure it aligns with your current situation and needs.
Dave Ramsey also recommends insuring your children with a rider that covers all children in the family up to adulthood. This can provide $10,000 to $25,000 in coverage for $50-$60 per year. However, he discourages taking out separate child policies as a savings plan or to guarantee their insurability as adults.
In summary, Dave Ramsey's advice on when to get life insurance centres around having financial dependents and opting for term life insurance with a coverage amount of 10-12 times your annual income.
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How long your life insurance policy should be
Dave Ramsey recommends that you get term life insurance as soon as possible, as the premiums only get more expensive as you age. He suggests a policy worth 10–12 times your annual income, which should cover you for the period of time that you have people depending on your income. This is usually 10–20 years, or until your kids head off to college and live on their own.
If you are married, Ramsey advises that both you and your spouse need term life policies. Stay-at-home parents especially need coverage because they are your private chef, chauffeur, in-house daycare, and life coach. If anything happened to them, you would need to pay for these services.
The length of your term life insurance policy depends on your unique circumstances. If you plan on having children in the future, a 30-year plan might make sense. If you have a newborn and don’t expect any more children, a 20-year plan is a better option. You can also choose a term length of 15–20 years.
It is important to review your term life insurance policy regularly to ensure that you have the right coverage for your current situation. Life-changing events, such as having a child, buying a new home, getting a raise at work, or improving your health, can impact the amount of coverage you need.
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How to get affordable life insurance
Dave Ramsey, a well-known financial expert, advocates for a specific approach to life insurance called "buy term and invest the difference". This strategy involves purchasing term life insurance and then investing the money saved by not buying more expensive whole life insurance policies. Term life insurance is the only type of life insurance that Dave Ramsey recommends. It is more affordable than whole life insurance, which can be up to 10 times more expensive.
Term life insurance provides coverage for a specific term, such as 10, 20, or 30 years, and pays out a death benefit if the policyholder passes away during that period. It is important to get term life insurance as soon as possible because the premiums only get more expensive as you age. Additionally, if you are married, both you and your spouse should have term life policies, even if one of you is a stay-at-home parent.
To get affordable life insurance, you can follow these steps:
- Understand the different types of term life insurance: The two main types are level term life insurance and convertible term insurance. Level term life insurance offers a flat premium rate for the entire term, usually 15-20 years, and is the simplest form of life insurance because the premium and death benefit amount do not change. Convertible term insurance allows policyholders to convert their term life insurance into a whole life insurance policy at a later date without a medical examination.
- Compare rates from different insurance companies: RamseyTrusted partner Zander Insurance can help you get rates from top life insurance companies and pair you with the one that fits your needs best. You can also use the Term Life Calculator to figure out how much coverage you need and get a free quote.
- Consider your financial goals and health: By choosing convertible term insurance, looking for the right riders, and taking into account your financial goals and health, you can make informed decisions about your life insurance coverage.
- Buy term and invest the difference: This is Dave Ramsey's philosophy on life insurance. By purchasing term life insurance instead of whole life insurance, you can save money on premiums and invest those savings to build real wealth.
Remember, the amount of life insurance you need depends on your income and the number of dependents you have. Dave Ramsey recommends a policy worth 10-12 times your annual income.
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Frequently asked questions
Dave Ramsey recommends a policy worth 10-12 times your annual income.
Dave Ramsey recommends term life insurance over whole life insurance. Term life insurance is a simpler and more affordable option, as it offers a flat premium rate for the entire term.
Dave Ramsey suggests buying term life insurance as soon as possible, as premiums get more expensive as you age. He recommends buying based on when your children will be heading to college and living on their own.
