Are you supporting a family? Are you wondering if it’s time to purchase life insurance?
Like most forms of insurance, life insurance involves the insured making regular premium payments. In exchange, the insurance company agrees to pay your beneficiaries a lump sum in the event of your death.
You may be wondering “how much life insurance should I have?”
The answer depends upon a number of factors.
Let’s take a look.
Term Life Insurance
Term life insurance will provide financial protection for your family for a specified period of time, usually 15-20 years. If you wish to have coverage beyond that number of years, you may be required to pay a significantly higher monthly premium.
Term life insurance can provide for the needs of your beneficiaries, including paying off a mortgage and paying for college. A term life payment will come as one lump sum, and not in regular smaller payments.
How Much Life Insurance Should I Have?
Most insurance companies recommend that your insurance policy should be about six to ten times greater than your annual salary. That means that if you’re making $50,000 per year, you’ll want a life insurance policy for $300,000 to $500,000. Some folks will consider getting policies that are fifteen to twenty times their annual income if their children are younger.
You’ll want your beneficiaries to be able to maintain their standard of living in the unlikely event that you were to pass on. Think about how many years your children would require you to provide for them before they can pay their own bills.
You’ll want to think about expenses including mortgages, utilities, and college tuition. And don’t forget about expenses like medical bills, home repairs, and tutoring.
In spite of what you might think, stay-at-home moms can also take out life insurance policies based on the services they provide. For example, they are caregivers, homemakers, and drivers.
You may also wish to consider working funeral costs into your life insurance policy. They can cost anywhere from $8,000 to $10,000. Some policies will allow you to make a small contribution to your funeral each month in addition to your regular policy.
Family Income Benefit Insurance
Family income benefit insurance can get purchased in addition to a term life insurance policy. It will provide your beneficiaries with an amount of money equal to your monthly income in the unlikely event that you were to pass on.
The payout for family income benefit is typically from the time of passing until the end of the insurance policy term. Let’s say you were to take out a 30-year policy and pass away after ten years. Your beneficiaries would then receive a regular tax-free income for the next twenty years.
Whole Life Insurance
Whole life insurance is designed to provide additional coverage to term life insurance. They also involve a savings account which would allow additional funds to accumulate.
Whole life insurance policies are designed to last for the lifetime of your beneficiary, as opposed to the limited number of years in a term life insurance policy.
The savings component of a whole life insurance policy can be invested. It can also, however, be accessed by the policyholder while they are still alive as needed. They can either withdraw from it or borrow against it.
Decreasing Term Life Insurance
When you purchase a decreasing term life insurance policy, the coverage will decrease over the life of the policy at a predetermined rate. Your premiums will remain constant, but reductions in coverage could occur monthly or yearly.
Decreasing term life insurance policies are usually less expensive than term or whole life policies.
These policies are popular among those who need to cover debts, loans, or financial obligations. The amount of these payments is expected to decrease over time, and would, therefore, become less of a burden to your beneficiaries if you were to pass on.
Some financial debts you may consider are mortgage loans, personal loans, and business loans. They can get structured to match your outstanding debts and help your beneficiaries pay them off.
What to Look For in an Insurance Policy
Before choosing a life insurance policy, you’ll want to ask trusted family and friends for recommendations. Don’t be afraid to ask questions about their experiences.
Were they treated with respect and professionalism? Were all questions answered on time? Were there any unexpected payments in their policies?
If you can’t get any personal recommendations, read online reviews to find out what other clients are saying.
When you call the company, make note of how you’re treated. Do all representatives answer your questions quickly and professionally? Did you feel that they were knowledgeable about the various aspects of the policies offered?
Take your time to decide which type of policy is best for your family. You’ll want to consider factors such as your age, income level, and the number of children.
Think about how many more years it’s reasonable to expect that your children will be dependent on a family income to meet their needs. And you’ll also want to think about any outstanding mortgage or business loans you have.
Make sure you get estimates on different types of policies from at least three different companies before making your final decision. You’ll want to be certain that what you’ll be paying is reasonable for your age and geographical area.
Life insurance is critical for providing for the basic needs of your beneficiaries if you were to pass on. If you are wondering “how much life insurance should I have?” consider a few things. You’ll want to carefully survey your financial needs, as well as those of your dependents, before making a final decision.
For more information on life insurance policies, contact us today.