Category: How Much Insurance Should I Get?

Guest post by Linda R. Chavez of Seniors Life Insurance Finder

Term life is the simplest and most affordable type of life insurance. 

Insurance companies usually offer term life insurance policies in increments of 10, 15, 20, or even 30 years at most. 

The death benefit of a term life policy typically ranges from $100,000 to $500,000. It can be more or less, depending on the carrier. 

Upon the death of the insured, the payout is tax-free. It can be used by the beneficiaries for anything they see fit – funeral expenses, mortgage, debts such as medical bills or student loans, or even day-to-day expenses.

There are two main questions you have to ask yourself when buying term life insurance.

1. How much coverage do you need?
2. How long do you want the policy to last?

How Much Coverage Do You Need?

The precise answer to the first question is that it entirely depends on your circumstances. Still there are different opinions on how you can decide the death benefit amount:

• Use 6 to 10 times your annual salary.
• Multiply the years you still have until retirement times your annual salary
• Multiply much the beneficiaries spend each year to maintain their standard of living times 20. The reasoning behind this is the beneficiaries can use 5% of the payout each year – enough to maintain their current standard of living. They can then invest the rest of the benefit to make an earning of it.
• The best choice is to use an online life insurance needs estimator that covers all the bases. QualityTermLife’s needs estimator is free, powerful, and easy to use.

Keep in mind that the more the coverage you have, the more expensive your payments (known as premiums) will be. Aside from the amount of coverage, the cost of premiums also depends on your age, health, and sex. 

How Long Do You Want the Policy to Last?

When deciding the length of your term life insurance policy, the general rule of thumb is for it to last as long as your dependents will rely on you financially.

Let’s say that you have children aged in their teen years. They will depend on you until they have jobs of their own – which is around 10 years from now. Experts advise buying a 10-year term life policy.

However, if you’re a new parent, you will need a policy that covers you for around 20 years or so in order to protect your children past the age of eighteen. 

Another common reason for life insurance is if you have just bought a house. You will want a 30-year term life policy to pay off the mortgage as well as provide a financial cushion for emergencies.

The Longer the Term is, the More You Pay

The longer the term of your life insurance, the more likely you are to die while the policy is in force. Thus, the company is likelier to pay out the death benefit.

Here is a chart that displays different the rates for a $500,000 policy with term lengths of 10, 20, and 30 years quoted for a 35-year-old male in California with a Preferred Plus health rating, non-smoker*

Term Length	Avg Monthly Premium*	Best Quote from QualityTermLife
10 years	$20.20	$14.52 (see it here)
20 years	$29	$21.07 (see it here)
30 years	$44.50	$34.79 (see it here)

• These prices are the mean average of 11 carriers, including AIG, Mutual of Omaha, Pacific Life, Prudential, and Transamerica.

Does this mean then that a longer term life insurance policy should be avoided? Well, not really. Buying a longer term life insurance policy has its advantage. 

It allows you to lock in lower premiums that will never increase even if you develop severe health conditions in the duration of the term.

Decide on the Length of Your Term Life Insurance

Your term length should depend on your longest monetary responsibilities. Mortgage, or providing for a child .

The important thing to remember is that as long as your dependents need your financial support, you should be insured.

Short and long-term considerations determine coverage amount

The basic premise of life insurance is to provide a financial cushion for your dependents. The question then becomes, how much of a cushion do you need?

There are a variety of methods and formulas you can use to determine how much life insurance coverage is appropriate for you and your family.

You can look at it from two perspectives: the immediate need and the long-term need.

The immediate need

This refers to the money that will be needed to cover funeral expenses and help your family get through the initial months immediately following your death. This is the time when everyone is still reeling from the shock and trying to figure out how best to get on with their lives. Life insurance can provide a quick financial buffer to help families through this transitional time period.

The long-term need

This refers to the economic needs of the family over a longer time horizon. How much will be needed to cover the family’s annual living expenses? This is often broken down into two categories — one for the living expenses while the children are still at home, and the second for the living expenses for the surviving spouse after the children have moved out: including how much is needed to pay for college costs for the children, and how much to pay off the mortgage?

Unique Needs

This works out differently for every family based upon their unique needs and circumstances. For instance, single-income families dependent on the income of a single wage-earner will have a different set of needs than a two-income family. Additionally, if there is a stay-at-home parent, it is important to calculate the economic impact if he or she were to die, such as the cost of child-care expenses and running the household.

There are a variety of calculators available on the Internet. These can be a great starting point, though I always think it is good idea to discuss your specific situation with a life insurance professional, such as the expert advisors at Quality Term Life Insurance.

Source: Laura Medigovich