Dear Dave,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!
Dear Dave,My wife and I were recently involved in an auto accident, and the insurance company doesn’t want to cover the damage due to a technicality. We both work, so I’d like to find a replacement car while we fight this out with the insurer. However, we only have $7,000 in savings and we don’t want to spend it all. What should we do?
You can definitely find your wife a good used car for what you’ve got in the bank. However, leaving yourselves with no savings whatsoever is not a good plan.