Insurance on the DIME method. I had my own method but thanks to a friend I like this one better. This DIME method helps you decide how much term insurance your should get. I will also tell you how to make sure the money is not used up too quickly.
Get enough insurance to cover:
D for death burial = 20k
I for income = 10 times your salary
M for mortgage = If you have mortgage of 250k get that much
E for expenses or education = whatever debt besides the mortgage you may have and some for the kids college.
In the above acronym the key is the income replacement. How do we make it last? Imagine a family of four. Main bread winner makes 70k the other spouse doesn’t work. Kids are 6 and 2. They owe 250k on the mortgage and have 50k in debt. Add it all together they should get about 1 million in coverage. Should something happen to the main bread winner the house and debts get paid. Now that leaves you around 700k to survive. However, without a plan that money can run out quickly. Here is what my house would do with the 700k if this was our scenario.
You take the 700k and put it in an S&P 500 index fund. If it averages around 12% for the life of the fund at that rate it would generate 84k a year income. You take 60k, leave the other 14k to pay taxes on the growth. (You don’t pay taxes on life insurance proceeds FYI.) You don’t need the entire 70k because you no longer have a mortgage payment. Now you have replaced the main bread winners income and avoided a financial crisis while you’re in an emotional crisis.
“Smart people get insurance to replace their income and more, not so smart people get insurance just to cover burial.” anonymous
If you have questions don’t hesitate to ask. Take charge of your money!
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