Life insurance gives you the peace of mind that your family will always be taken care of. However, how much life insurance do you need from your life insurance broker? In this video, Dave Ramsey shares his life insurance advice.
Life insurance is structured in such a way that when you pass away, your family will receive a lump sum of money as specified in the contract. The ideal way to use this lump sum is to invest it and receive around 10% return on investment.
Specifically, mutual funds are a great investment because they spread out the risk. How much life insurance you need all depends on how much your family wants to live on.
It all comes down to a simple formula. You take the amount you want to live on, then multiply that number by ten. For example, if you want to live on $100,000 a year, you would need a $1 million life insurance policy. This number can be less if you are already investing. Then you just substract the amount you are already investing from this number. It is as simple as that.