Insurance needs

Gina knows Dave recommends having 10 to 12 times your annual income in term life insurance coverage. She asks if the amount should be based on gross or net income.

QUESTION: Gina knows Dave recommends having 10 to 12 times your annual income in term life insurance coverage. She asks if the amount should be based on gross or net income.

ANSWER: I’m talking about gross income because you’re trying to replace your income. If you make $50,000 a year and you die, someone needs $50,000 a year where you used to provide $50,000. How are we going to create $50,000? You need to invest $500,000 to $600,000, and you can create a $50,000 income.

Of course, you’ve got to pay taxes on it. Investment income has taxes just like wage income has taxes. So, gross to gross is what we’re going for in these situations. That way it replaces your income. And it’s not that expensive. Term insurance, especially when compared to whole life (rip-off) insurance, is really inexpensive.