Life insurance is one of the most important protections you can provide your family, yet 43% of people don’t have any form of life insurance at all. Even more devastating, nearly one third of Americans would feel financial hardship within a month of their primary household member dying. Not only is purchasing life insurance important but purchasing the right amount is also equally important.
One of the common questions we get is: “How much life insurance do I need.” This is a question that is dependent on so many different factors. You don’t want to be insurance rich and cash poor but you also want to have enough to make sure family is able to live comfortably.
Here is a couple of tips to consider before deciding an Amount:
Know how much you can afford. You don’t want to get part of the way through your policy and have to drop it because you simply can’t pay the premiums. It will likely cost more to purchase a new policy.- Gather how much dept you have and what it would take to pay it off. The last thing you want to do is leave your loved ones with too much dept.
- Look at yours families goals. This could include when you spouse wants to retire, would you want to pay for your kids college or even would you want to pay for your son or daughters wedding. In the event that you pass, you can still have life insurance set aside to help meet these goals.
- Look at the cost of your funeral. You might something simple or a large service.
Purchasing life insurance isn’t so simple and that is why working with an independent insurance agent is important. Lets take a look at a variety of different scenario.
Insurance if you are working:
The main income in the family needs to be protected. If your spouse today, how long could you truely make it on one income. You need to get at least 10 times the income of your spouse. This would give your significant other the ability to make it 10 years in a similar fashion to the way they live now. An even better option is to get 20-30 times your annual income. You can never be replaced but you can leave your family in a good sound financial situation.
Insurance for a Non-working Spouse
A non working spouse may not make any money but that doesn’t mean they don’t bring any monetary value to the household. Most times non-working spouses usually stay at home so they don’t have to pay for a babysitter or daycare. They may also just stay at home because their husband or wife has an extensive work schedule and they need to take care of their home. Either way, the living spouse would have some financial burdens if the non-working spouse died. It is recommended that a non-working takes out at least half the insurance of the working spouse.
What if I own a business?
If you own a business and pass away, your business partner is going to experience some hardships. Not only will you need life insurance to take care of your loved ones but also to keep the business going. Here are a couple of policies you might want to consider
Key Person Insurance for Businesses – This is a type of policy that the business takes out. You will want to take out at least 1-3x annual revenue
Key Person Insurance for Businesses – This is a type of policy that the business takes out. You will want to take out at least 1-3x annual revenue- the key employee is responsible for. If an important partner in the business passes away, the business will be able to make up the income with the life insurance.
- Buy Sell Coverage for Business – If you pass away, you don’t want to your family to have to worry about selling or what to do with your business. This is a type of policy your business partners take out on your to make sure to be able to buy the business if something were to happen to you. Generally, you want to take out 1-1.5 times the current value of the business
What if I am retired?
Retirement can be tricky to figure out how much life insurance you will need. Most times if you are waiting until retirement to get life insurance, you are going to be limited on the options and the amount. In most cases, you will want to at least cover all of your dept and funeral costs.
Many people don’t like talking about death but you don’t want to put that on your significant other when you pass away. Most funeral homes will let you pre-plan your funeral and give you a cost estimate. Funerals typically range from $2000 to $10,000 depending on what you want.
Husband (Steve) : 29 Year old Making 70,000 per year
Wife (Abby) : 27 year old Stay at home Mom with 2 Kids
Lets first look at home much life insurance Steve would need. Steve is a Computer Software Salesperson that travels weekly. The minimum life insurance Steve would want to take out would be somewhere around $620,000. That would replace his income for about 10 years for his wife Abby to get get on her feet. That wouldn’t help her with the kids college or other hardships they might face. To live more comfortable, Steve should take out $900,000 to $1,250,000. This would replace his income for between 15-25 years and help provide a cushion for extra expenses.
Next, lets look at how much life insurance Abby would need. Many people might not purchase life insurance because they don’t have an income. That doesn’t mean they don’t help provide financially for the family. If Abby were to pass, either Steve would have to change jobs or hire a nanny for the kids. Steve should purchase at least half of the amount of life his holds. This could be anywhere from $310,000 to $625,000.
How much would that Cost?
Many people would think this much life insurance would cost an arm and a leg. For a 20 year term policy for $620,000, Steve would only pay about $23-$24 per month. On that same term for $1,250,000, he would only pay between $38.60.
Abby’s cost would be even less. For a 20 year term, she for pay about $13 per month $310,000 in coverage. For $620,000, Abby would pay about $20 per month.
Where Can I Purchase Life Insurance?
Life insurance can be purchased many different ways. The first is a captive agent or directly from the Company. In most cases, you will only have one option. Likewise, you can also purchase from an Independent Agent like MBG Insurance. An Independent Agent typically works with multiple companies and has multiple options. They can help match you with a company that might provide a better policy or terms for your family.
Note: Rates are as of January, 30th 2019 and based upon a preferred best non-tobacco