Dave Says: What Term of Life Insurance Do I Need?

Dear Dave,

I'm 24 years old, and I have a wife and child. We've been following your plan, and I'm about to buy life insurance. Should I get a 20- or 30-year term policy?

- Derek

Dear Derek,

I think the big question is how long will you need this life insurance. If you and your wife are planning on having more kids in the next 10 years, I'd suggest a 30-year policy. That could put you in a situation of being 34 years old with a new baby. That's not old by any means, but your wife will need 20 years' worth of coverage if this happens because you'd want the kids grown and out of the house before the insurance term runs out.

But that's just one of your financial goals at this point. You also want to be debt-free. And you need to ask yourself some other questions. Are you going to have your house paid for 15 years from now? I sure hope you didn't take out more than a 15-year mortgage. Are your kids going to be grown and gone by then? Are you going to have a big pile of money in the bank by then? In other words, where are you going to be at the end of the term?

If 15 years from now you have $700,000 in your retirement account, your house is paid for, and the kids are out on their own, then, if you die, your wife will be fine, financially speaking. But at that time, if you still have kids in the house and your home isn't paid off, then you'd probably need a 20-year policy.

That's how I would look at it. How much longer are you going to need life insurance?

- Dave