Hello there, this is your Plymouth insurance agent and today we will be talking about life insurance and the 10 to 12 times rule. One of the big questions that is asked all the time when it comes to life insurance is how much life insurance do we need? As a base figure we confidently use the 10-12 times rule. This rule takes an income amount and simply multiplies it out by 10 to 12 times. So if you make $50,000 this would give your a range of $500,000 to $600,000. Now we know that with this comes the important understanding of income earning for families. Some people earn an annual salary at a job, but someone like a stay at home mom has high income value since she negates the cost of daycare, cleaning, time cooking meals and grocery shopping. 

Now this moves us to the next important factor which is who actually needs life insurance?

The recommendation that we always give is that almost everyone who has any sort of debt or provides any sort of financial gain to someone else or to a family needs life insurance. Many people associate life insurance with someone that earns an income from a job. However, this isn’t always the only circumstance where someone needs life insurance because a stay at home mom provides income in a sort of third party way because raising the kids negates your need for something outside of the home such as daycare, which can be quite costly in this day and age. So having a life insurance policy just for income earners who have a job is not always what is needed. Every family situation is going to be a little bit different, and so the exact number of dollars for life insurance for each family or each person is going to be different as well.

What your Plymouth insurance agent likes to recommend for life insurance is to have between 10 and 12 times your annual income if you are an income earning for the family. If a person has take home pay of $50,000 what we recommend is between $500,000 and $600,000 for a life insurance policy. For a non working financial contributing person, such as your stay at home mom, the same principle applies. What we like to do is find out how many dollars per month a stay at home mom negates. For example with a stay at home mom is offsetting the cost of having any sort of daycare, cleaning services, shopping, and time making meals. We find the cost of this and  multiply that out by 10 to 12 times. With that general rule, it will give you a sizeable amount of life insurance that will generally cover all the costs associated with paying off a mortgage, paying for all the yearly expenses such as bills, clothing and food and all of those things. In addition to paying off some other debts, and with proper planning and invest provide money for retirement funds, college funds, etc.

Through experience, your Plymouth insurance agent knows some people have debts that are out of the norm and unusually high. If this is the case, then that is also something to look into separately, and to add to your life insurance policy benefit amount if the need is there. Some other things to consider as well if you have children and if that 10 to 12 times income or income offset number will cover all their needs until they are on their own. These are things such as college funds and just the total expenses it will cost for raising your children. So that 10 to 12 times rule is usually going to get you in a safe financial position, but if you really want to take a more true account of how much life insurance you need, it is better to look through all of your debts, look at how much you’re spending monthly for things like bills and clothes and all the necessities, and then finding out how much in addition you would like to have on top of that for things like college funds and even retirement. Another major factor is if you don’t have a lot of retirement funds and that is something you would like to be generous with for a spouse. Sometimes the 10-12 times rule seems a bit low, so again make sure you know your situation. Talking to your Plymouth insurance agent EnviZion Insurance is a good way to find out what is best for your personal situation and family.

So although it’s a good general rule to do 10 to 12 times to get a more defined and specific number for your family, it is a good idea to take an account of everything and then really apply it to the specific needs of your family. Nothing is more important than comparing this number to your true finances to make sure it is is enough for you. Since this rule is a base we like to start with, and can be used with great effectiveness for many clients, it is not always perfect for everyone. Life insurance is by no means something that is a one size fits all. So it’s really important that you take the time to really recognize what your family needs in a very broad manner so that you’re covering all the expenses and really protecting your family financially.

As your Plymouth insurance agent we always stress to our clients the importance of life insurance. Life Insurance is by far one of the best ways to protect your family’s finances from one of the most devastating types of losses that a family will ever experience. And part of our insurance advice is always recommending life insurance for everyone that has anyone that relies on them, and for anyone that is earning an income or is a significant contributing member of a family, such as a stay at home mom, that would need to be replaced by paying someone to do the job that they are doing. EnviZion Insurance is always here as your Plymouth insurance agent to help you more fully understand your insurance options, and provide sound insurance advice to our community.