How much life insurance do you need?

February 16, 2007 at 7:32 pm Leave a comment

If you’re struggling to find the right amount of life insurance for you, here’s a quick post to help you out. This post deals mainly with term-life policies, not whole, universal or any other cash value product.

Plain and simple, your life insurance needs depend on the amount the primary bread-winner brings in. In most households, there is typically one person who makes more than the other. Of course this varies, but for the majority of workers in America, this is the case.

It’s important to remember the purpose that life insurance, or any other type of insurance, serves. And that is, it transfers risk from you to the insurance company. The more risk you can assume, the less insurance you require. The less risk you can assume, which is the case with most things, the more insurance you require.

Enough with the jabber, how much do I need?
You need about ten times your income, if you are the primary income source in your household. For example, if you make $30,000, you need a term-life policy of $300,000.

If you are not the primary income source, it’s a good idea to get about eight to ten times what you make. If you happen to be a stay-at-home mom or dad, figure out what it would cost to replace you. Most stay-at-home parents are worth more than people would assume.

Term-life has many terms, which one do I choose?
A solid policy is a 20-year level term. If you are managing your money well now, you probably won’t need life insurance at the end of the 20-year term. At least you shouldn’t. There are folks that believe that life insurance is a permanent need, but, it’s not. We’ll go into detail about that one at a later time.

How much will it cost?
The great news about term-life insurance is that it costs next to nothing compared to it’s value. You can get a $250,000 policy for only $12.00 a month, for example.

Most cash value policies, because they have investments built in, can cost anywhere from $75 to $300 a month, for only $50,000 coverage. The claim is that it has a built in savings plan, but the returns are rarely what is claimed and there are fees and charges associated with it. If you want to invest, stick to mutual funds or other type of investment vehicle. Don’t mix your investments with insurance.

How can I determine the cost for life insurance?
Here’s an easy way to figure out what term-life will cost you over the course of a year.

Approximate Costs
Age 30 – $0.60 per $1,000 coverage
Age 40 – $0.90 per $1,000 coverage
Age 50 – $2.50 per $1,000 coverage
Age 60 – $6.65 per $1,000 coverage

*20-year level term
**Tobacco users add 100%

Calculation
# of thousands x Rate per $1,000 = Total Premium

Advertisements

Entry filed under: Insurance.

How to calculate the change in rate in your ARM Paying off your home early really is a good idea

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Trackback this post  |  Subscribe to the comments via RSS Feed


Calendar

February 2007
M T W T F S S
« Jan   Jun »
 1234
567891011
12131415161718
19202122232425
262728  

Most Recent Posts


%d bloggers like this: