Life insurance is an easy thing to brush off. It seems like something you do later in life, and it also seems complicated. To get the ball rolling and make sure your loved ones are protected, financial planner Carl Richards suggests what he calls “the 20-20 plan”.
Photo by Stephen DePolo.
There are lots of ways to calculate and consider just how much life insurance you need, but Richards argues that searching for a perfect life insurance plan often keeps people from coming up with one that’s good enough. He explains the first step in his plan, which is figuring out how much you need:
Take your salary and multiply it by 20. First, you have to decide how much life insurance to buy. This is where most people get stuck. You’re not going to get stuck. Just take your income and multiple it by 20. For example, let’s say your income is $50,000. Take $50,000 times 20 and you get $1 million. This is the amount of life insurance coverage you’ll buy. This goes a long way toward replacing the economic loss that will result if you’re no longer around.
From there, he suggests simply taking out a 20-year term policy for that plan. Richards says term life insurance is the cheapest, simplest policy you can buy, and as long as you pay your premiums, you’ll be insured for the full 20-year term and your premiums won’t increase.
It’s not a perfect plan, but it’s a good enough one to get started. And getting started is better than not having a plan at all. Check out his full post at the link below.
Life Insurance Made Easy [The New York Times]