I’m looking at buying term life insurance. Currently, I’m in medical school doing my last year of residency and making $35,000 a year. Should I base the amount of insurance coverage on what I’m making now or what I’ll make when I’ve finished medical school?
In most cases, I advise basing the amount of life insurance coverage on the income you’re earning at the moment. After all, that’s the amount your family is used to living on, right? However, if you’re finishing up your medical degree this year, it’s a virtual certainty you’ll earn lots more in 2014. You could easily go from making $35,000 to $135,000.
I recommend that people buy term life insurance coverage of about 10 to 12 times their annual income. Considering your situation, I’d say you could afford to buy a little potential. Instead of basing it on your current $35,000 income and buying a policy in the $350,000 to $400,000 range, you might double that amount. It will still be really cheap coverage as long as you’re in decent health. And once you’re making doctor money you can adjust the amount of coverage according to what you actually make.
Good luck, Amanda!
* Dave Ramsey is America’s trusted voice on money and business. He’s authored four New York Times best-selling books: Financial Peace, More Than Enough, The Total Money Makeover and EntreLeadership. The Dave Ramsey Show is heard by more than 6 million listeners each week on more than 500 radio stations. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com