Comparing term life vs. whole life insurance

While most people know what life insurance is at the most basic level, they may not be able to explain the differences and benefits that come along with the many kinds of insurance policies. For starters there are two types of life insurance, term and permanent life insurance of which whole life insurance is most common. Both types will pay a death benefit to your beneficiaries when you pass away, but if you want to protect your family’s financial future, it’s important to know the basics about these two options.

Read more about term life vs. whole life insurance

How much life insurance coverage?

Life Insurance coverage is an important part of everyone's financial strategy and the amount that you need is unique to your personal situation. Therefore, there is no cut-and-dry formula that tells you how much you should get for your specific situation. However, these industry rules of thumb can give you a general idea:

1. Human Life Value* Some financial representatives calculate the amount you need using the Human Life Value philosophy, which is your lifetime income potential: what you’re earning now, and what you expect to earn in the future. In its simplest form, the philosophy suggests that you multiply your income by a variable based on factors such as age, occupation, projected working years, and current benefits. As with every individual, the amount of recommended insurance you purchase depends on many factors. A simple way to get that number, however, is to multiply your salary times 30 if you are between the ages of 18 and 40. The calculation changes based on your age group, so please refer to the chart:

   Recommended insurance amounts based on age

   Age	Insurance Amount
   18-40	30 times income
   41-50	20 times income
   51-60	15 times income
   61-65	10 times income
   66-70	1 times net worth
   71-75	1/2 times net worth

2. Multiply your income by 10 – and add college for each child. This approach is almost as easy to figure out as the first rule, but also helps plan for opportunities like college for your children. How much should you add for each child? College isn’t cheap: you should account for somewhere between $100,000 and $150,000 per child. If you split the difference – and have 2 kids – that’s an extra $250,000.

3. Use the DIME formula DIME stands for Debt, Income, Mortgage, and Education – the four big factors to consider when making a more detailed estimate of your life insurance needs:

   Debt: Total all your debts other than your mortgage. Car payments, credit cards, student loans – even personal obligations such as money you may have borrowed from a sibling to put a down payment on your house. On top of all that, add about $7,000 for funeral expenses.

   Income: How much do you make a year? And how many years will your family need that money? It’s a hard question to answer, but a good place to start is determining how many years until your youngest child graduates from high school. For example, if you make $50,000 and have nine years until your youngest graduates from high school, put down $450,000 for income.

   Mortgage: Look at your last statement and get the pay-off amount. If you have a second mortgage or HELOC (Home Equity Line of Credit) add that in as well (if you haven’t already included it in the debt section above).

   Education:The anticipated cost for sending each of your children to college. As we said before, figure between $100,000 and $150,000 per child.

   Add those four factors all up and that’s your number. You can also make adjustments (i.e., subtract) for any current savings and life insurance you already carry. The DIME method takes a little more work, but it’s also more precise – and you can probably get all the numbers you need in an hour or so by going through your files at home.

Read more about how much life insurance do you need.

How to buy term life insurance

Remember these general rules are just that – generalities that are not specific to you, and at the end, the amount you are approved for and what you will end up paying is largely based on your age and your general health condition, also known as your insurability.

There are a lot of things to consider when you buy an insurance policy that goes beyond the types that are out there. Questions like:

• How much coverage do I need?
• What do all the different policy options (or riders) mean?
• Is there other coverage I need to protect my family?

Contact a Guardian financial professional who will take the time to learn about your unique situation, listen to your concerns, and clearly explain the different insurance options to fit your needs and your budget – from a company that’s been helping protect families for over 150 years.