How Much Life Insurance Do You Need?
Which brings us to one of the less popular but relevant topics: life insurance. Who needs it? When do you need it? How much should you get? How much will it cost? And where should you get it?
Not everyone needs life insurance, but many people would benefit from it at certain times in their lives.
“Who needs it? Anyone who has someone they love or care about and who depends on them,” said Megan Kopka, a certified financial planner in Wilmington, North Carolina, who she was – same widow at 38 with two children when her husband died of amyotrophic lateral sclerosis, more commonly known as ALS or Lou Gehrig’s disease.
Think of it this way: “Who would suffer financial loss when you die?” Said Mark Maurer, president and CEO of LLIS, an insurance agency based in Tampa, Fla. That works exclusively with paid financial advisers.
Obviously, your young children can suffer financially without you, especially if you are a single parent.
If you’re married, even though you don’t have kids, “you might still want an income replacement for your spouse,” said Colton Etherton, a certified financial planner. based in Beaverton, Oregon, who works primarily with Millennial clients. This is especially the case if your spouse earns much less than you.
And regardless of marital status, don’t forget about aging parents or a sick family member if you helped them or promised to.
However, you probably don’t need life insurance if:
- You are single, divorced or retired and you have no dependents or a partner who depends on you financially.
- You have enough assets to provide your survivors with funds for all major life expenses for years to come (including mortgage, education, health care, retirement income, etc.).
- You are married to someone who is wealthy enough to support yourself and your children in the style you have both become accustomed to.
How long should your life insurance policy last?
Many forms of life insurance are âpermanentâ, meaning they cover you for your entire life. They can be a useful estate planning tool for those who have the means, Kopka said. But many policies also have complicated investing and savings elements, along with expensive premiums.
“[Permanent insurance] is not recommended unless you meet all other financial goals, [such as having sufficient] insurance coverage on all things, including civil liability, [you’re] maximize retirement savings, etc. She said.
For most people, however, the most affordable and straightforward type of life insurance is term life insurance, which will cover you for a number of years, say 10, 20, or 30 years.
Kopka, knowing the financial constraints of premature widowhood when you have children, recommends that every young parent with a newborn baby take out a 30-year term life insurance policy.
But at the bare minimum, Maurer said, consider having a 10-year policy. “Once you have kids, you need at least 10 times your income.”
If your children are young, you may want to purchase a policy that lasts at least long enough to cover their expenses until they are 18 or 22, if you want to help them pay for their college education.
How much do you need
The amount of life insurance you buy – that is, how much money you would pay if you died – depends on a ton of variables: how much you earn, how old you are, how healthy you are, how many children you have and their ages, what big expenses you plan to spend in the next few decades, etc.
Many people have life insurance offered by their employer. These policies promise to pay your beneficiaries either a fixed amount (eg, $ 50,000) or a multiple of your salary (eg, 1 x annual salary) upon your death.
But this free coverage, while useful, is usually insufficient to cover the needs of your survivors, especially when you have young children. This is because you will need this money to cover the expenses every year until your dependents no longer need support.
Also, don’t forget about new expenses that your survivors may have to incur in your absence. “If my wife died, I would have to find someone to help me [with our kids] so I can continue working, âEtherton said.
While a million dollar policy seems like a lot, Kopka said, think about what that amount could generate each year if your beneficiary invests it conservatively – maybe 3% to 5%, or 30,000. $ to $ 50,000. So if your current income is higher than that now, you may need to insure your family for more if you want this money to support them for a few decades if you die young. But if you think they won’t need it for more than 10 years, a million dollars might be enough.
How much will life insurance cost and where should you get it?
The younger and healthier you are when you buy a term life insurance policy, the more affordable it will be.
Maurer released some numbers, pricing a $ 1 million term life insurance policy for a male non-smoker with a guaranteed premium locked in for the life of the policy.
If he bought a term policy for 20 to 25 years, he would pay $ 477 in annual premiums (or about $ 40 per month). If he waited until he was 35, he would pay $ 533 per year (almost $ 45 per month). And if he bought the same policy at age 45, he would pay $ 1,223 per year (about $ 102 per month).
If you buy life insurance from your employer and want to increase your coverage, you will likely get a better deal buying a new policy on your own if you are young and in good health.
âEmployer-sponsored coverage usually has a rate class – so that covers all types of health and they all pay the same rate,â Maurer said.
And your premiums for the extra coverage you buy from your employer will likely increase every five years after you turn 30, he added, when you can lock in the cost of the premium for the duration of any. font that you buy yourself.
But if you’re not in very good health, Maurer said, you’re probably better off just paying for increased coverage as part of your company plan, because outside insurers will charge you more based on your condition. health.