Should I base life insurance coverage on what I make now or my future income?

Dear Dave,

I’m currently in medical school doing my last year of residency. The other day, a friend made me realize the need for life insurance, so that’s gotten me to think a little more carefully about the future. I’m looking at term life insurance like you recommend, but I have a question. Should I base the amount of coverage on what I’m currently making, or on what I think I’ll be earning once I’ve finished medical school and I’m working as a doctor?

Will

Dear Will,

Congratulations, young man! You’ve been studying and working hard for a long time, and it’s about to pay off in a big way. I’m really proud of you.

In most cases, I advise basing the amount of life insurance coverage on the income you’re earning currently. After all, that’s the amount you and/or your family is used to living on. However, if you’re finishing up your medical degree, and about to become a full-fledged doctor, you’ll definitely earn more than you are as a resident—a lot more.

I recommend that people buy term life insurance coverage of 10 to 12 times their annual income. Considering your situation, I’d say you could afford to buy a little potential, if you know what I mean. Instead of basing it on your current income, you might consider doubling the amount for starters just to safe. It will still be good, cheap coverage, as long as you’re in decent health. Then, once you’re making doctor money, it’s an easy fix to adjust the amount of coverage according to what you actually make. And the cost will be very, very reasonable.

You’ve got an amazing future ahead of you, Will. Keep working hard and being smart in your career and in your finances. God bless you, and best of luck!

— Dave