Percentage of Income for Life Insurance?

[James]

Obviously we all have heard about the X factor for life, may it be 10, 15 or 20X your income. So let me ask this, is there a standard factor on cost as percentage of yearly income. Such as a Home, use to be I think 20% of yearly income, even now I think that is closer to 40% of income. So is there any formula one uses to fit Insurance money within the household budget?

 

[indaville]

Obviously we all have heard about the X factor for life, may it be 10, 15 or 20X your income. So let me ask this, is there a standard factor on cost as percentage of yearly income. Such as a Home, use to be I think 20% of yearly income, even now I think that is closer to 40% of income. So is there any formula one uses to fit Insurance money within the household budget?

I have always heard 5% should be spent on insuring your assests (Home, cars, income, etc.) What percentage of income spent on LI depends if the person is buying only DB or if they are looking for ways to save more money.

 

[Stevuke]

I have always heard 5% should be spent on insuring your assests (Home, cars, income, etc.) What percentage of income spent on LI depends if the person is buying only DB or if they are looking for ways to save more money.

That makes good sense, thanks for the insight.

I would agree that if it is whole life - the premium should be counted towards the 10-15% recommended savings rate.

After all, after 15 - 35 years. whole life cash value is typically at the aquivalent of a 4 - 6% (not per year but as an interest rate calculation based on the whole life premium PMT and the FV being the cash value over N years) savings veicle (and who would complain about 5% in a muni bond?).

I use this with I-bankers all the time and they love it. They have volatile income and usually volatile investments so they appreciate "safe money".

When we show them that whole life way out-paces munis or CDs or whatever safe vehicle they've been using - it's a lay up from there.


Best, Steven Druckman

 

[StrategyMan]

Frankly, I would argue to spend as little as possible on a high value term insurance policy, while investing as much as possible in tax deferred investments. Life insurance is not an investment strategy, it is a short term stopgap until one's finances mature at retirement.

http://www.portland-lifeinsurance.com

 

[Guest]

We don't see too many posts from 2006 resurrected here. That's ancient history! What brought this on?

 

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