Life Insurance Coverage is Necessary
If your employer automatically provides you with life insurance coverage, I want you to listen.
Life insurance you get at work as a free benefit will not protect your loved ones.
Workplace life insurance pays a very small death benefit that is usually equal to one or maybe two years of your salary.
That’s not enough. To fully protect your loved ones and ensure they never run into financial hardship, my advice is to consider a term life insurance policy that is at least 20 times (25 times is even better) the annual income that needs to be replaced.
term insurance is very affordable
I bet my 20x to 25x tip made you gulp. that sounds like it would be unaffordable.
Not if you listen to me.
Most families only need term life insurance, which is not very expensive. For example, a 40-year-old man in good health (not fantastic health, just good health and a non-smoker) might pay $120 a month for a 20-year term life policy that will pay a $1.25 million death benefit if he dies in that 20 year stretch. that’s less than $30 a week for great peace of mind for you and your loved ones.
OK, now that you know it’s affordable, let’s review my key rules of life insurance:
- protect anyone who depends on your income. If you are single, have no children, and no one depends on your income, you do not need life insurance. But if someone (spouse, child, partner, parent, sibling) depends on your income, you can protect them with life insurance.
- Keep the term life insurance. Unless you have someone in your family with special needs, there is generally no need to purchase whole life insurance or universal life insurance, which are known as “permanent” policies and cost much more.
- Decide how long you need the insurance to be in force. A term insurance policy is only in effect for a set number of years. You can buy a 5-year policy, a 10-year policy, a 20-year policy, or even more. If you have young children today, you may want a 20- or 25-year policy, to ensure there are funds to support them through college. Or if you want to make sure that no one has to sell the house you live in, you can get a term policy for at least the remaining years of your mortgage.
- Multiply the annual income you want to insure by 20 or 25. The reason I want you to get such a large policy is so that if something happens and your loved ones receive the death benefit, they can invest it conservatively in bonds to generate most of the income they need.
- Choose an annual renewable level term policy. This means that your annual premium will never change for each year the policy is “in force.”
You can get a quick idea of possible premium costs on the term4sale.com website. Sites like selectquote.com and policygenius.com sell life insurance. yes, you can buy a policy directly from your computer. Even if you need a medical exam, most insurers will send someone to your home to check your vital signs and perhaps draw blood for basic tests.