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Life and Health


By June 1, 2012No Comments

Unpredictable job and investment markets make it difficult to determine how much Life insurance to buy. The standard formulas for buying coverage to match a specific percentage of income are inadequate solutions. Online calculation tools usually tell everyone to raise their coverage by $1 million. However, Life insurance is a personal issue. For example, a married couple with three children and a mortgage will need more coverage than a childless couple without a mortgage. When the markets are down, many people are tempted to shirk their Life insurance needs. Major life changes also affect how people deal with their individual needs. It is best to take a systematic approach to buying coverage instead of relying on standard rules and formulas.

One Simple Strategy. The main purpose of Life insurance is to provide survivors with enough funds to pay the final expenses and continue life comfortably. This is why most calculators are programmed to suggest a chunk of money equal to at least 20 years of regular income. With overall longer life expectancy and a lower savings yield, this might be too high of a goal for most people. There is a much simpler strategy for figuring out exactly how much insurance is needed. It is also better to buy from a plan that is easy to update. After projecting personal needs from the following four categories, assess the situation to see if extra coverage or different policies are needed.

  1. Debts & Mortgages. Write down the total of all auto loans, mortgages, student loans and any other debts. All of these debts might be a serious burden for survivors to handle. However, survivors might choose to keep up mortgage payments. Be sure to allow enough money to make this possible.
  2. Final Expenses. Traditional funerals can cost between $10,000 and $20,000. Although pre-planning a funeral is beneficial, it is even more important to ensure enough Life insurance funds are available to pay the final bill. For a reasonable funeral figure, aim for $15,000.
  3. Income Replacement. Families will not need 100% of the policyholder’s current income. Be sure to deduct final expenses, education costs and debts. As a rule, it is best to plan on replacing 50% of pretax income until retirement. This amount can be placed in a lump sum by dividing 50% of annual income by 0.05.
  4. Education Expenses. This might be one of the most difficult calculations. Each school varies in tuition costs, and the tuition rates may be much different by the time children are ready to enroll in college. The average cost of college tuition has been rising by about 5% each year. This is the same rate Life insurance is expected to grow over time. Calculate the future cost of tuition at the desired colleges, and add the amount to a Life insurance policy.

To determine how much Life insurance is needed, add all four of these categories’ totals. If there is no pension, it is beneficial to increase the amount. However, if a spouse earns a considerable salary, it might be feasible to decrease the total. For family members with unique or troublesome medical conditions, add between $100,000 and $250,000. The overall total usually adds up to a six-figure amount or slightly more than $1 million. Increasing a death benefit on a Term Life insurance policy usually costs several hundred dollars each year, so the premium amount should not be impossible to pay. To get a better idea of what to expect for a premium, discuss the figures with our agents.

Getting married, having children, buying property and retiring are all life steps that require more Life insurance. There are many different options for this coverage. Young and healthy individuals can usually lock in a low price for many years. Some policies also come with the option to convert to permanent coverage, which can be kept regardless of future health conditions. Term Life becomes expensive after age 65, so it is a smart idea to consider Whole or Universal policies. To determine the best option, discuss personal details with one of our agents.