When buying life insurance there comes a couple of questions followed by the decision like what type of life insurance do you want, what coverage or face amount do you need, and what are your beneficiaries? You may have figured out that you want to buy life insurance but aren’t quite sure of the coverage amount but don’t worry that’s why we are here! You may have also heard of life a life insurance amount of $250k and that isn’t a bad place to start and if this is the coverage amount you want then perfect you are already a step ahead but if you are not sure then you will know by the end of this article. In this article, term life vs permanent life, we will be discussing whether or not $250k is enough, how to know if it’s enough, and we will end this article with our words to the stay at home spouse! The following are some key points from this article;
- Congratulations, you have taken the first big step toward getting a new policy. Now you just need to figure out which type of life insurance will fit you the best! There are two major life insurance types and they are term life and permanent life.
- When trying to determine if $250,000 is enough coverage just think of all the debt you have including your mortgage and also consider if your spouse needs your income replacement. $250k is actually the most popular amount that clients choose.
- Determining your coverage amount: multiply your income by 10, plus $100, 000 per child for college expenses, you need to add up your mortgage, with the student loans you may have, or business loans, what you owe to your car dealership for that new BMW, and of course you need to add up your final expenses, or your funeral costs, add you annual salary times the number of years you want to replace income, then you subtract your liquid assets such as your savings and existing college funds and current life insurance if you already have one.
- Both parents or both spouses should be insured because the value provided by the stay at home parent or stay at home spouse (you) need to be replaced if you were to pass away.
Term life vs Permanent life
Congratulations, you have taken the first big step toward getting a new policy. Now you just need to figure out which type of life insurance will fit you the best! There are two major life insurance types and they are term life and permanent life. Term life is a form of temporary life insurance that only provides coverage for a short and specified period of time. Term life insurance is best for those who are trying to fill a specific need during a specific time, it’s perfect for short-term needs or loans. Term life insurance is the most affordable life insurance in the market and if you don’t have a big budget for life insurance then you should consider term life insurance. You can always convert your term life insurance policy into a permanent life insurance policy (of course depending on which carrier). Most carriers offer term lengths of 5, 10, 15, 20, 25, or 30-years. Depending on how long you want to stay covered for you will need to determine which length best fits your current situation. Once your term life policy expires you will have to renew it annually (this is an expensive option because your premiums will increase yearly) this happens automatically. You can choose to convert into a permanent life insurance policy without having to go through the whole underwriting process again, or you can simply end your policy until you need life insurance again but your rates and premium amounts will change since you will have to go through the underwriting process all over again.
Permanent life insurance consists of a couple different kinds of life insurance. Whole life is a form of permanent life insurance and provides coverage for you guessed it, your WHOLE life. Universal life is another form of permanent life insurance and again provides coverage for the rest of your life but with more flexibility in terms of premiums and coverage amount (you have the flexibility to change your premium amount and coverage amount at any time of your policy.) Index Universal life is yet another form of permanent life insurance and of which provides coverage for the rest of your life, it does offer flexibility, but it also offers investment opportunities, these policies have minimal risk. Variable Universal is again another type of permanent life insurance and provides coverage for your entire life, with flexibility, and again offers investment opportunities. This one differs from Index universal because variable universal has no cap floor and you have to manage your investments leaving more room for risk. All permanent life insurance kinds offer cash value build up and accumulation of which index and variable universal use a portion to do the investments.
Is $250k enough coverage?
Whether $250,000 is enough or not we cannot tell you because that depends on your personal needs. We are not aware of your specific needs and debts. Of course, if you are really not sure in the end of this article you can always give us a call and we can figure it out together. When trying to determine if $250,000 is enough coverage just think of all the debt you have including your mortgage and also consider if your spouse needs your income replacement. $250k is actually the most popular amount that clients choose. It’s a quarter million and if people aren’t aware of exact numbers but know it isn’t worth having coverage of half a million they usually stick to this amount. We have provided a table of example quotes from top rated companies just look into the $250k column and you can see for yourself what some quotes will look like.
How much life insurance do I need?
This question is asked a lot working in this field and it’s totally okay to not know everything in this world, that’s why we’re here remember? In general, you should find your life insurance policy amount by calculation your long-term financial obligations and then by subtracting your assets. The remainder is the gap that life insurance will have to fill. The first thing you should do is multiply your income by 10. This is a very helpful step because once you multiply your income by 10 you will be able to have a bigger number to look at of course it isn’t as detailed but it will all come together nicely.
Keep in mind that education expenses are an important component of your life insurance calculation if you have children. After you multiply your income by 10 you need to plus $100, 000 per child for college expenses. This should cover student loans or whatever necessary for your child to go to college if something were to happen to you.
After you have multiplied your income by 10 and added $100,000 per child for education costs you should then add up your debt and final expenses. You need to add up your mortgage, with the student loans you may have, or business loans, what you owe to your car dealership for that new BMW, and of course, you need to add up your final expenses, or your funeral costs. A lot of people don’t realize how costly it is to have a funeral and be buried or be cremated, it can cost thousands of dollars for your loved ones to take care of your final expenses so make sure you add up at least $10,000 for your final expenses.
Now that you have most of your obligations lined up you now have an idea of the costs of your needs. Remember to add you annual salary times the number of years you want to replace income + your mortgage balance + your other debts + your children’s college expenses + final expenses/funeral costs. Then you just subtract your liquid assets such as your savings and existing college funds and current life insurance if you already have one.
For the stay at home spouse
It is very important for you to understand how important life insurance is for you too. Both parents or both spouses should be insured because the value provided by the stay at home parent or stay at home spouse (you) need to be replaced if you were to pass away. This is because if you really think about it, if you pass away, who would manage the house, cook, raise the children, and do all the things your spouse doesn’t? Don’t downplay your role in the household because if you were to pass away would your spouse know exactly how to take over both their work and home duties? At the bare minimum, the remaining parent or spouse would need to pay someone to provide the same services you provide such as child care, that you would provide for free.
Work with us!
When looking for life insurance, we always recommend for everyone to shop around for quotes. This way you can ensure that you are getting the best rate possible. If you think about it for a second, you will realize that when you buy a new car you don’t go off your first offer, you look around some more go to different car dealerships then you come together and think of which car dealership gave you the best deal then you go with them. Think of life insurance the same way, these companies will offer you different rates and that’s why you should always shop around because you will get different quotes. IF you have 30 seconds go below this article and fill out our super quick quote engine so that you can see for yourself what quotes you may be offered. Not only will you be able to see quotes companies will offer you in seconds but you will also be able to compare those quotes with different life insurance companies at the same time. Or you can always give us a call, we are an independent life insurance agency who work with over 60 top rated companies but have zero ties with them because our loyalty is reserved for our clients and only our clients. Did we mention that our services are FREE? Because they are FREE, we will shop around on your behalf until we find the best life insurance company who reflects your specific needs, health, and lifestyle. Not only will we shop around for quotes until our fingers get tired but we will also fill out the entire application with the company of your choosing! Our services will leave you worry free and happy that you are done with the whole life insurance thing. Give us a call today so that you can stop worrying and enjoy more time with those who matter the most, your family.