The Life Insurance Cheat Sheet (Free & Printable)

Almost every life insurance policy falls into one of two families. Term covers you for a set number of years. Permanent coverage — whole life, final expense, and universal life — is designed to last your whole life and builds cash value along the way.

A popular rule of thumb is "10 times your income," but it misses a lot. The DIME method is a better starting point because it's built around what your family would actually have to pay for. Add up four things:

• D — Debt: Credit cards, car loans, personal loans, final expenses.
• I — Income: Your yearly income × the years your family would need it.
• M — Mortgage: What's left on the mortgage, if you have one.
• E — Education: Future school costs for any children.

Then subtract savings and any life insurance you already have, including coverage through work. What's left is a reasonable coverage target.

Insurers set your rate based on how likely they are to pay a claim during the policy. The main factors:

• Age. Rates generally go up with every birthday.
• Health. Your medical history and current conditions.
• Tobacco. Tobacco and nicotine use usually raises rates significantly.
• Coverage amount. More coverage costs more.
• Term length. A 30-year term costs more than a 10-year term.
• Occupation and hobbies. Sometimes — for higher-risk jobs or activities like piloting or scuba diving.

Because rates generally go up with every birthday — and health can change — the cheapest day to buy life insurance is usually today. Comparing multiple options from A-rated carriers can make a real difference, too.

Before you sign anything, get clear answers to these:

• Is it term or permanent?
• Can the premium increase?
• Is the death benefit level or graded?
• Is there a waiting period?
• Who is the carrier, and what is its financial rating?
• Can I convert a term policy later?

A "graded" death benefit means the full amount isn't paid if death happens in the first year or two, often for reasons other than an accident. A waiting period works the same way. Both are common on no-exam policies, so ask directly.

• Pressure to replace a policy you already have without a side-by-side comparison.
• "Investment" pitches that skip over the costs and fees.
• Guaranteed-issue policies offered first when you might qualify for better.
• Anyone who won't put the numbers in writing.

A good agent will show you options side by side, explain the trade-offs, and put everything in writing. If you already have a policy that still fits, a good agent will tell you that, too.

Final expenses are more than the funeral itself. They can include the service, burial or cremation, a headstone or urn, transportation, flowers, and an obituary — plus medical bills, credit card balances, and other debts left behind.

Costs vary a lot by state and by the choices a family makes. If you'd like to spare your family those bills, a final expense policy or a portion of a larger policy can be set aside for them. It's worth getting a local estimate and sharing your wishes with the people who'll handle them.