Life Insurance Ratio

Another ratio I developed is the Life Insurance Ratio (LIR). The ratio provides you with guidance on how much life insurance you should consider at your age.

Like the other ratios, it is based off your income. Essentially, when you are younger and don’t have much capital (savings), you need life insurance to protect your family. As you get older and your savings grows, you will outgrow the need for basic life insurance.

While the Life Insurance Ratio is integrated with your other ratios (basically you need to be on track with the other ratios), the following is a little example of how easy it is to use.

If you are age 50 and make 100,000, your Life Insurance Ratio is 6.8. So just take 6.8 and multiply it by your pay. This means you should consider $680,000 of life insurance. As you age, the Life Insurance Ratio declines, and hopefully, by the time you retire, you won’t need any insurance because you have enough capital to support you and your spouse. If you passed away, your spouse would be fine without the insurance.

The key to insurance is to use only what you need to protect your income and assets, and the ratios help you figure this out.

The insurance ratios cover life, disability and long term care insurance. I show you when you might need each type of insurance, and how much at each age. There are insurance ratios for every age between 25 and 65.