WalletPrep worksheet · Protect yourself
How much term life insurance do I need?
Name ____________________ Date __________
Key ideas
- You need it when someone depends on you. A partner, a child or a co-signer on your mortgage. Single with no dependents, you may need little or none.
- Size it from real needs. Add years of income, debts, kids' costs and final expenses, then subtract savings and existing coverage. In the example, that is $400,000.
- Match the term to the need. Pick a term that lasts until your youngest child is grown or your mortgage is paid off, often 20 or 30 years.
Vocabulary
- Beneficiary
- The person or group you name to receive an account, a trust or an insurance payout when you die.
- Gross income
- Your total pay before any taxes or deductions are taken out. Salary offers and loan applications usually ask for this number.
- Cosigner
- A second person who signs a loan and promises to repay the whole debt if the main borrower doesn't.
- Contingent beneficiary
- The backup person who receives an account or policy if the primary beneficiary has died before you.
Work it out
Tasha is 32, earns $55,000 a year and has a partner and a 2-year-old. She wants to cover 7 years of income if she dies.
- Yearly income
- Income for 7 years
- Car loan and card debt
- Fund for her child
- Final expenses
- Total need
- Savings
- Life insurance from work
- Policy to buy
Check yourself
Who most clearly needs term life insurance?
- A. A single renter with no dependents
- B. A parent whose partner relies on their paycheck
- C. A retiree with a paid-off home and grown children
- D. A college student with no debt
Your needs add up to $500,000. You have $20,000 saved and $80,000 of coverage from work. How much should you buy?
- A. $500,000
- B. $480,000
- C. $420,000
- D. $400,000
What happens to a term policy when the term ends and you are still alive?
- A. Coverage ends, or you can renew at a higher price
- B. You get all your premiums back
- C. It turns into whole life automatically
- D. The insurer pays half the benefit
Your turn
Write down your yearly income × the years your family would need it, add your debts and kids' costs, then subtract savings and any work coverage. Request three quotes for that amount and a term that lasts until your youngest is grown.
Answer key
How much term life insurance do I need?
Work it out
- Yearly income$55,000
- Income for 7 years$385,000
- Car loan and card debt$25,000
- Fund for her child$40,000
- Final expenses$10,000
- Total need= $460,000
- Savings− $10,000
- Life insurance from work− $50,000
- Policy to buy= $400,000
- Income first: $55,000 × 7 = $385,000. Add $25,000 of debt, a $40,000 fund for her child and $10,000 for final expenses. That is $460,000.
- Subtract what already exists: $10,000 in savings and a $50,000 policy from work. $460,000 − $10,000 − $50,000 = $400,000.
- Check it: $400,000 ÷ $55,000 is about 7.3 times income, inside the 5 to 8 times range. She buys a 20-year term, which covers her child to age 22.
Check yourself
- B. A parent whose partner relies on their paycheck Life insurance replaces income for people who depend on it. A parent with a partner who relies on their pay is the clearest case.
- D. $400,000 $500,000 − $20,000 − $80,000 = $400,000. Subtract savings and existing coverage from the total need.
- A. Coverage ends, or you can renew at a higher price Term coverage simply ends at the end of the term. Many policies let you renew, but at a price based on your older age.