How Much Life Insurance Do I Need as a Young Professional?

Insurance Insights
photo of mother and daughter - how much life insurance do you need as a young professional

One of the most common questions we hear from the young professionals we work with is “how much life insurance do I need as a young professional?” This question and ultimately the answer are increasingly important for young professionals, especially as big life events like marriage and children occur.

While a rule of thumb can be effective starting points when it comes to answering the “how much life insurance do I need as young professional?” question, they are just that, a rule of thumb. Which undoubtedly means they are merely a starting point to arriving at an appropriate answer and not the final conclusion of what’s appropriate for a young professionals unique circumstances.

With that said, however, setting your retirement savings rate, allocating your money, or selecting an appropriate amount of life insurance, executing the basic rule of thumb is almost always a far better solution than the most common alternative, doing nothing.

Answering the “How Much Life Insurance Do I Need? Question in 5 Minutes

The life insurance industry has done a masterful job of making life insurance exponentially more complicated than it oftentimes needs to be. With whole life, universal life, variable life, universal variable life (VUL), term life, increasing term, annual renewable term, decreasing term, second-to-die policies, burial insurance, life insurance with long-term care riders, and the list continues. It’s no wonder being adequately insured oftentimes gets overlooked by young professionals because it’s so ridiculously complicated and it can be difficult to find someone to objectively assess your needs and make an appropriate recommendation.

Enter a simple rule of thumb.

As noted above, general rules of thumb are flawed because they apply to the average person of which the vast majority of people are not, in fact, average. However, in the world of personal finance, using a rule of thumb is almost always exponentially better than not doing anything, which is precisely why we start by giving you a simple framework for getting basic life insurance coverage in place.

The general rule of thumb when it comes to how much life insurance you should have can be done by multiplying two simple numbers together, your salary and the number ten. If for example, you make $125,000 per year than simply multiply that by ten and call it a day, you need $1,250,000 in life insurance.

The More Nuanced Approach to Calculating How Much Life Insurance You Need

Unfortunately we don’t live in a simple world of black and white answers that can be effectively answered with two simple numbers—or at least most of the times it’s not that simple. Which is why it’s helpful to have a better understanding of a few of the moving pieces in the lives of young professionals that could indicate that more or less life insurance might be needed. Here are a handful of considerations that can materially impact the amount of life insurance you need:

  1. You’re a young business owner… if you’re a young dentist buying into a practice and taking on half a million dollars in business debt, it’s likely that your life insurance needs will not be satisfied with a simple rule of thumb calculation.
  2. You have private student loan debt… Federal student loans are forgiven if an individual passes away and their spouse avoids repayment liability, however, private student loans do not typically offer the same protections, meaning the deceased’s estate, any co-signers, and the living spouse all may be on the hook.
  3. You aren’t married… if you aren’t married and have little debt than ten times your income may actually be too much life insurance for your situation.
  4. Only one spouse works… if only one spouse works the life insurance calculation becomes a bit more nuanced as daycare costs, earning potential of the homemaking spouse, and a host of other factors can impact the estimate.
  5. You want to send your kids to private school… if you anticipate sending your kids to a private school while they grow up, it’s important to factor that added expense into a more nuanced calculation of how much life insurance you need as a young professional.
  6. You’re planning to fund college with income… if you are planning to pay for your children’s higher education costs out of income when the time comes that may mean you’ll need to increase the amount of insurance coverage you have.

Like just about any aspect of financial planning, it’s important to consider the unique facts and circumstances relevant to your situation before settling on recommendations. Lastly, once you’ve settled on how much life insurance you need as a young professional you then need to settle on what type of life insurance is best. The simple rule of thumb here applies to the vast majority of people: basic term life insurance is the best and cheapest form of insurance out there.

For a simple quote to better understand how much low-cost term insurance might cost, check out Quotacy.

About Matt Cosgriff, CFP(®)

Minneapolis Financial Planner | Intrapreneur | Young Professional | Millennial Guru | Tech Aficionado | Traveler | Food Lover | Minnesota Wild Fan | Movie Quoter | Follow on Twitter| LinkedIn

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Providing the perfect blend of powerful technology and human guidance, Lifewise is geared toward young professionals searching for a better way to make wise choices and sound financial decisions. Backed by BerganKDV Wealth Management, Lifewise is supported by a team of CPAs, CFPs and CFAs who stand ready to guide you through every financial challenge and windfall.

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