How much life insurance do you need?
The pandemic made it very clear to everyone that life is not going according to plan.
It was also an invigorating reminder that we could die much sooner than expected, and that means you could inadvertently leave your loved one's high and dry.
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 I get? How much will it cost, and where should I get it?
Who needs life insurance and when?
Not everyone needs life insurance, but many people would benefit from having it at certain times in their life.
"Who needs it? Anyone who has someone they love or who depends on them," said Megan Korea, a certified financial planner in Wilmington, North Carolina who was widowed as her father at age 38 with two children 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 if they died?" Said Mark Mauser, president and CEO of ELLIS, a Tampa, Florida-based insurance agency that works exclusively with financial advisors who only charge fees counting.
Of course, your young children can suffer financially without you, especially if you are a single parent.
If you're married, "you may still want to replace your spouse's income," says Colton Atherton, a Beaverton, Oregon-based certified financial planner who works primarily with millennial clients. This is especially the case if your spouse earns significantly less than you do.
And, regardless of marital status, don't forget an elderly parent or a sick family member if you've helped them or promised to help them.
Finally, consider who might be responsible for the debt or other large expense you leave behind, such as a parent who signed a loan or a spouse with whom you have a joint financial account or who owns a business with you.
However, you are unlikely to need life insurance if:
- You are single, divorced, retired and have no family members or a financially dependent partner.
- You have sufficient assets to support your survivors with all essential life expenses (including mortgages, education, health care, retirement income, etc.) for the years to come.
- He is married to someone rich enough to support himself and his children as usual.
How long should your life insurance last?
Several forms of life insurance are "permanent" which means they will cover you for life. They can be a useful estate planning tool for those with financial resources, Korea said. However, in addition to expensive premiums, many policies also contain complex investment and savings components.
"[Permanent insurance] is not recommended unless you achieve all of your other financial goals, [such as getting enough] coverage for all things, including personal liability, [you] maximize retirement savings, and so on."
For most people, however, term life insurance is the simplest and cheapest type of life insurance that will cover you for a certain number of years, e.g. B. 10, 20 or 30 years.
Korea, who knows the financial stress of premature widowhood in children, recommends 30-year life insurance to all young parents with a newborn.
But at least, said Mauser, you should consider a 10-year policy. "If you have children, you need at least ten times your income."
If your children are young, if you want to fund their college education, you may want to get a policy that will last at least enough to cover their costs until they are 18 or 22 years old.
How much do you need?
The amount of life insurance you buy - how much money you would pay in the event of death - depends on many variables: how much you earn, how old you are, how healthy you are, how many children you have and their age, what high expenses you expect for the future, the next decades, etc. for example 1 x annual salary) in the event of death.
While this free protection is helpful, it is often not enough to meet the needs of your surviving dependents, especially if you have young children. That's because you need this money every year to cover expenses until your loved ones stop needing assistance. .
Also think about any new expenses that your dependents may incur while you are away. "If my wife dies, I would have to find someone to help me [with our children] so I can keep working," Etherton said.
How can you put all this into figures? After you have determined the annual income that your family needs during your absence, calculate an amount that can generate as much or something similar. (Calculators like this one can help you get a rough idea.)
While a $1 million policy sounds like a lot, Kopka said, think about how much that amount could lose each year if your beneficiary owns it Conservative, maybe 3% to 5% or $30,000 to $50,000. So if your current income is higher than that, you may need to insure your family more if you want to support that money for a few decades in case you die young.But if you hope it won't take you more than 10 years, $1 million might be enough.
How much does life insurance cost and where can you get it?
The younger and healthier you are when you take out term life insurance, the cheaper it will be.
Mason made some numbers and set a lifetime life insurance policy of $1 million for a male non-smoker with a guaranteed premium for the life of the policy.
If you took out a 20-year policy when you were 25, you will pay $477 in annual premiums (or about $40 per month). If you waited until 35, you'd be paying $533 a year (almost $45 a month). If you took out the same policy when you were 45, you would pay $1,223 per year (approximately $102 per month).
If you want to get life insurance through your employer and increase your coverage, the chances are good that you will buy a new policy yourself when you are young and healthy.
"Employer-funded insurance generally has a tariff class that covers all types of illness and everyone pays the same tariff," said Maurer.
And your premiums for supplementary insurance that you buy through your employer are likely to increase every five years once you turn 30, he added, while keeping the cost of the premium up for the life of any policy you take out yourself.
But if you're not in good health, Maurer said, you'd probably better just pay for more coverage under your business plan because outside insurers will charge you more based on your health.