Search Results for: life insurance

When Do You No Longer Need Life Insurance?

November 4, 2019 By MelissaB Leave a Comment

Life insurance is the most affordable peace of mind that I can think of. For usually less than $100 a month to cover both you and your spouse, you can rest easy knowing that if something happened to you or your significant other, your family would be taken care of. When you’re deeply grieving, you won’t need to worry about making a house payment or taking care of your kids. You and your family will be protected financially. But when do you no longer need life insurance?

Life insurance is meant to be a temporary measure. You shouldn’t need it forever, which is good because it gets significantly more expensive as you age. What gets a bit tricky is predicting how much life insurance you need and when you will no longer need it.

My husband and I bought life insurance 15 years ago, when our oldest child was just four months old. We got a 20 year policy, so our oldest will be nearly 20 when our policy expires. Our youngest will be just 14 then, so we are planning to buy another policy that will overlap our current one. We’re wrestling with the idea of just getting a 15 year policy or a 20 year policy.

If you’re like us, trying to decide how long you need life insurance coverage and how much you need, here are some variables you may want to consider:

How Long Do You Want to Cover Your Children?

You’ll definitely want to have insurance coverage until your youngest child turns 18. Many people decide to carry coverage until their youngest child is 22 or 23 because college can be so expensive. If you or your spouse dies, your child may need to rely on part of the life insurance money to help pay for the remainder of college.

When Do You No Longer Need Life Insurance? — Photo by John-Mark Smith on Unsplash

How Many Years Are Left on Your Mortgage?

While this variable may not affect how many years you want coverage, it may impact how much coverage you should have. You want to make sure you have enough life insurance to pay off your mortgage, plus more to cover other expenses.

Does Your Spouse Have a Medical Issue?

If your spouse will have trouble working thanks to a medical issue, you’ll want to carefully consider both the length of time you’ll need insurance and the amount. You’ll want to keep your coverage until you’re financially secure enough that your spouse will have enough money to survive even without life insurance.

Does Your Spouse Have a Career?

If your spouse has stayed home with the kids, how easily will he or she be able to re-enter the workforce if you die? Don’t take this lightly. Entering the workforce after a long break can be very difficult.

Mary is a family friend who is a stay-at-home mom. Her husband was killed in a car accident when he was only 32. Thanks to his life insurance policy, she was able to stay home with her children until they graduated high school. Because she invested the policy wisely, she never did re-enter the workforce. Instead, she volunteered in her free time.

How Much Debt Do You Have?

Again, this is a question of how much coverage you will have. In addition to your mortgage, you want to make sure there is enough life insurance to cover your remaining debts such as car loans, student loans, and credit cards. In many states, even if your spouse dies, you may still be held liable for these debts.

Choosing how much life insurance to get and for how long requires careful consideration. These questions should help you make the right choice.

Are there any other variables you use to consider how much and how long you should have life insurance?

How Much Life Insurance Do I Need?

November 23, 2013 By Shane Ede 3 Comments

Life insurance seems like a second thought to so many people. You’ll notice that the title of this article isn’t “Do I Need Life Insurance?”. That’s because there really isn’t much question about whether you need life insurance or not. I suppose there might be a few exceptions, but pretty much everyone needs and should have life insurance. It’s just a matter of how much you need. There’s a couple of ways to figure out how much you really need.

How much life insurance can I afford?

This is probably the most popular method of choosing life insurance. And it’s completely wrong. If you ask most people how much life insurance they can afford the answer is almost always “little” or “none”. Again, wrong answer. Most of us carry car insurance because it’s something that covers us against a loss. If our car is damaged in an accident, we have the insurance to help with the cost of repairing or replacing the car. To the people who depend on us for income, we need to have life insurance in place to help with the costs of continuing on when our income is lost.

How much income do I need to replace?

This question is usually a pretty good place to start when determining how much life insurance you need. If you’re a regular budget-maker, you probably have a pretty good idea of how much income you and your family need to pay the bills and keep food in the fridge. It’s probably not your entire salary, but it might be close. Take into account any investments you have, as well as assets that might become unneeded if you die. You’re family probably won’t need that second car anymore, for instance. Also, any payments on those assets that can be disposed of can be discounted as well.

How long do I need to replace the income?

Once you know how much income you need to replace, the next question you need to ask is how long you need to replace it for. In an ideal world, you’d be able to buy enough life insurance to set your family up for life. Your spouse would be able to quit work and take care of the kids full-time. You’d be able to pay for the children’s college education. But, the world we live in is far from ideal. Most of us won’t be able to afford the premium payments on a life insurance policy that will pay out enough to do those things. In a romanticist world, your spouse would grieve for your loss for the rest of his or her life. That isn’t all that likely either. It’s far more likely that your spouse will remarry at some point.

All of that still leaves us without a real answer to the time question though, doesn’t it? You’ll have to make some assumptions in order to really answer the question. Assume that your spouse will get remarried. Assume that you’re not going to be able to pay for your kids’ college education with the pay-out. I think a good starting point is somewhere around 3-7 years. Some will say that’s too long. Others will say that it’s too short. I don’t think there is a perfect answer. And, when you’re faced with a question that has no perfect answer, you’ve got to find an answer that is as close as possible.

Calculate, then purchase.

You’ve answered how much income you need to replace, and you’ve got a pretty good idea of how long you need to replace it for. Now, you’ve just got to put the two together and come up with how much life insurance you need. Multiply the income number by the length and you’re in the ballpark. Let’s say that you determine that you need to replace about $30,000 a year in income. You’re married to a real hottie, who shouldn’t have any issues with finding suitable future spouses, but you don’t want him or her to rush into it, so you use the 5 year length. $30,000 a year X 5 years = $150,000.

You might want to add a bit extra for sudden expenses at the time of death, like funeral, casket, and burial. But, that’s a pretty good ballpark number for how much life insurance you should buy. Now comes the big step… You’ve got to purchase it. Find a good place to compare life insurance policies and costs and get all the information compiled. Then pull the trigger and purchase the policy.

That will be the hardest part of the whole thing. If anything does happen to you, your family will be thankful that you did.

The Life Insurance Movement

August 22, 2012 By Shane Ede 9 Comments

Much like the Roth IRA movement that I participated in a while back, Jeff from Good Financial Cents is spearheading a Life Insurance movement today. The movement is designed to help educate people on the different types of life insurance, the ways to go about getting life insurance, and on how life insurance works, in general.

I’m sure we’ll see lots and lots of excellent articles to help educate the community. If you want to check them out, Jeff has compiled a list of all the participants and posted them on the Life Insurance Movement homepage.

Where do I stand on life insurance?

I used to be on the fence. On the one hand, there is a very strong argument for it. On the other hand, it can be pretty draining on your finances, for something you don’t use (hopefully).

For a young person, struggling with debt and bills, that extra $50-$60 a month to cover my wife and I is a not insignificant chunk of money. Neither of us is very old, and our probability of dying is pretty small. So, why spend that money on something that we have no plan on using when it could just as easily go towards paying off some bill? Maybe when we’re older, we thought, we’ll get ourselves some life insurance. You know, when we can “afford” it. I know there are quite a few of you out there who agree with that statement.

But, here’s the thing. I buy car insurance to help pay for damages to my car should I get in an accident. I’ve used that car insurance. My wife and I are good drivers, and neither of us has been in an accident that has been directly our fault. The few accidents we have been in have always been someone else’s fault. We had very little control over whether we got into that accident or not.

Life insurance isn’t all that much unlike car insurance. If car insurance only paid out if you were at fault in the accident, I’d never buy it. After all, I have never been in an accident that was my fault. Likewise, if life insurance only paid out if you died of natural causes, it wouldn’t make much sense, statistically, to purchase any before you were at least 45 years old. But, we all know that people don’t just die of natural causes. They die in all manner of accidents too. And those accidents don’t just happen to people of a certain age. So, it’s really the accidental, not-your-fault sort of death that you are insuring against. And you have no control over that. And, should you die as a result of one of those accidents, will your spouse and family be able to pay the bills? Or, will they be forced to sell the house to pay for the funeral? Do you really want them to have to make that decision if you die?

What kind of Life Insurance should I get?

There are basically two kinds of life insurance. Term life, and whole life. The difference is in how long the term of the insurance is, and how much the premiums are for the coverage level. A whole life insurance policy is good for your whole life. Because it’s good for your whole life, the premiums are usually higher for the coverages. A term life insurance policy is only good for a set term. It might be a 10-year term life policy, and be valid for 10 years from the purchase date. At the end of the 10 years, you have to purchase a new plan. When you are young, the term life policies have much cheaper premiums because, statistically, you aren’t very likely to die young, and so, the chances of having to pay out on the plan is pretty small. When you renew after the 10 years, the new plan would be based on your age at the time, and would be slightly more expensive because of a higher probability of death.

I can’t really tell you which is the best for you, though. It’s something that you, and maybe a good financial planner, should look very hard at. You need to educate yourself on the different types too! Really do your research, and don’t be misled by Colonial Penn’s “affordable” insurance, for example, look for a reputable life insurance company, that offers everything you and your family might need. I encourage you to click that link above, take a look at all the articles that are part of the life insurance movement, and find out as much as you can about life insurance. Being educated on the subject will make it easier for you to spot bad policies, and find one that will fit your financial needs.

How much life insurance do I need?

Clearly, we’d all like to have a life insurance policy of several million dollars. Some amount that would set our family up to never have to worry about money again should we die. In reality, that just isn’t usually possible. As the amount of the policy goes up, so do the premiums you pay to keep the policy. What you really want is a policy that will pay out enough to make the transition from a two person led household, to a one person led household.

If you’re single, a policy that would pay off your debt, and pay for the funeral is likely enough.
If you’re married, with no children, a policy that can pay off the debt, the funeral, and replace your salary for a couple of years is a good policy.
If you’re married, with children, a policy that can pay off the debt, the funeral, and replace 5-10 years of your salary with some left over is an excellent idea.

Obviously, all of that is partially determined by what size policy you can afford. By “afford”, I don’t mean afford in the way you likely do. I don’t mean, after you’ve eaten out several times in the month, how much money is left over to buy life insurance. I mean, it should be included in your budget, just like car insurance, your mortgage, and your utility bills. When all of that, plus your life insurance premium is paid, you still need to be able to keep your bills current, and buy food to stock the refrigerator. That kind of “afford”.

In the end, when you go and read all the other articles that are part of the life insurance movement, you’ll likely find several viewpoints that clash with mine. You’ll find people who think that whole life insurance is better than term life insurance. You’ll even find people who don’t think you need life insurance at all. I think the important part is that you think about life insurance, learn about life insurance, and then make the decision yourself (preferably with help) on whether you want life insurance, what kind of life insurance you want, and how much you want the policy to be.

Tip: Check with your employer. Some companies are offering life insurance to their employees.

For me, I think that life insurance of some sort should be mandatory, just like car insurance. There should be state required minimums that you have to carry. Far too many people are leaving behind families without any sort of coverage at all. Even if it’s a small policy that can cover funeral expenses, that’s better than nothing at all, and you can increase it later too!