Tiffany and her husband were building a life raising their daughter and special-needs son in Arizona when they called in to “The Ramsey Show,” where Dave Ramsey and his team give personal finance advice. Tiffany’s husband had a generous life insurance policy through his employer, so it seemed like they were covered. But were they? Tiffany began to question that after a family member got cancer and had to quit their job—which meant their life insurance policy disappeared.
Tiffany was right to wonder. What she was just beginning to realize was that her family would not be okay financially if her husband lost or quit his job and then died. Without his income and without that life insurance, there would be nothing to cover any mortgage payments, bills, childcare or future college plans.
Tiffany and her family are not alone. Close to half of America is underinsured.
How Much Life Insurance Do You Actually Need?
There’s a very specific number for how much life insurance you should have. Financial expert Dave Ramsey uses a simple formula of 10-12 times your annual income to determine how much your life insurance policy should be worth—and the policy should always be your own. When Tiffany called in, that’s the answer she got.
A policy worth that is the difference between Tiffany being able to grieve and Tiffany having to sell the house while she does.
Why 10-12x Works
The goal isn’t to give your family a windfall—life insurance is an income replacement strategy. With a payout worth 10 times your income, your family can invest the death benefit, live off the growth, and never touch the principal.
Here’s how the math works: Let’s say Tiffany’s husband earns $80,000 a year. Multiply that by 10 and you’ve got $800,000. Invested in a good growth stock mutual fund averaging a 10% return (roughly the historical S&P 500 average), the family will have $80,000 a year to live on—her husband’s full salary.
If $800,000 sounds like a lot of money, it is. You want your family to have the space to miss you, not scrambling to cover bills. And that’s what the right policy buys: not just money, but time. Time to grieve without a financial deadline. Time for the kids to stay in their schools, their sports, their lives.
How to Find Your Number
Do a quick check for your own family. Take your income and multiply it by 10. This is your base number, but you may need to lean toward 12 times your salary if your kids are still young, you have significant debt, or you want to help pay for future college costs.
Once you’ve done this math, you have your number. To find out how a policy for that number will fit into your budget, use a quote tool like the one at ramseysolutions.com/lifeinsurance. You’ll always want term life over permanent life insurance—it offers the same coverage with significantly lower premiums.
Whatever your number is, protecting your family is worth doing right.
