Do I Base the Amount of Life Insurance I Get on My Gross or Net Income?

When Dave recommends that families carry 10 to 12 times their income in term life insurance protection, he is referring to gross annual income.  The reason is that, although the death benefit of a life insurance policy is received tax free, once those funds are invested to generate an income for the surviving family members those earnings will still be taxed as a form of income, reducing their overall purchasing power.

The amount of tax may vary from based on earned or unearned income but, with taxes expected to stay level or increase over time (and factoring in the overall low cost of term life insurance), the best approach is to insure to the gross value.