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Life insurance is designed to protect the people who depend on you after you’re gone. Here, we look at how much coverage you need at age 60. [[{“value”:”
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When you’re 30 years old, it’s tough to imagine what it will be like to be 60. Once you’re 60, you realize just how much more living you have to do. However, you’re also aware that you don’t have as many years ahead of you as you have behind you. With that sobering thought, we dig into how much life insurance a 60-year-old should still carry.
A formula — of sorts
One way of calculating how much life insurance you need is based on the value of future earnings. One simple way people estimate how much insurance they’ll need to cover future earnings is like this:
Age 18 to 40: 30 times your incomeAge 41 to 50: 20 times your incomeAge 51 to 60: 15 times your incomeAge 61 to 65: 10 times your income
For example, if you’re a 60-year-old earning $100,000, this rule indicates you need $1.5 million in life insurance coverage. But whether you actually need that much depends on several factors.
The size of your nest egg
If you’ve always invested, you may have millions of dollars sitting in an IRA account, money that will pass to your beneficiaries when you die. If, after considering the financial obligations they will face following your death, you determine that there’s enough invested to help them remain comfortable, you may be able to get away with a much smaller life insurance payout.
DIME formula
The DIME formula is a simple way to determine how much life insurance coverage you need. It involves four factors: Debt, income, mortgage, and education. Here’s how it works:
Debt: Add up all your current debt (except your mortgage). This includes personal loans, credit cards, and car payments. Once you’ve totaled that amount, add an additional $7,000 to $9,000 to cover final expenses.Income: In this column, write down how much you earn a year and how many years your beneficiaries will likely need that money. For example, if you have two children still in college, think about how long it will be for them to finish school and get out on their own. Multiply that number of years by your current income. Let’s say you earn $50,000 annually and expect both kids to be out on their own in five years. That means you need a policy worth $250,000.Mortgage payments: Take a look at your last mortgage statement to find the payoff amount. If you have a home equity line of credit (HELOC) or other lien against your home, add that amount. Since you undoubtedly want your beneficiary to have the option of staying in the home when you’re gone, you know that you need a life insurance policy worth at least that amount.Education: If you still have a teenager at home, plan for between $100,000 and $150,000 to cover their higher education expenses.
Once you’re done taking these four factors into account, add them up. Adjust that number by subtracting any current life insurance, savings accounts, or investments you already have.
Act now
The earlier you purchase life insurance, the less you’ll pay. There are a couple of reasons for this:
The longer you wait, the more likely you are to encounter health issues — problems that could cause the cost of a policy to soar.In addition, the older you are when applying for life insurance, the more a policy will cost.
Life insurance is an important factor to keep in mind as you plan for your financial future. Having it won’t benefit you monetarily, but just knowing that the people you love are taken care of can offer peace of mind. And peace of mind is priceless.
Our picks for best life insurance companies
Life insurance is essential if you have people depending on you. We’ve combed through the options and developed a best-in-class list for life insurance coverage. This guide will help you find the best life insurance companies and the right type of policy for your needs. Read our free review today.
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