“I have life insurance, but do I have enough?” This is a question that I’ve been repeatedly asking myself since Liz and I started getting serious about a Will.
We have an investment property that yields $1,200 a month, my work provides $125,000 of life insurance, and I have a $100,000 life insurance policy that I pay $5 a month for. This all sounds pretty good, but is it enough?
Life Insurance – Do You Need It?
According to Life Health Pro, 85% of Americans admit that they need life insurance, but only 62% actually have it. And, for those that actually have life insurance, I suspect that many of them are under-insured. In other words, if they passed away tomorrow, their families would still struggle financially, even with the life insurance money.
What is the standard for life insurance? How much should one person have? In order to keep the message simple, this is what I tell my readers:
“You want to buy enough life insurance so that your family can survive comfortably for 10 years.”
If you kicked the bucket tomorrow, how much money would your family need to survive that year? $30,000? $50,000? $70,000? Then, multiply that amount by 10.
For Liz and I, we live on approximately $35,000 per year. In order to get Liz and my daughter through the next 10 years, I would need to make sure they had $350,000. So, either I could have a stash of cash worth $350,000, or I would need a life insurance policy that would cover the difference.
Some don’t have money, but also don’t need life insurance
I often get a ton of questions from people that don’t even need life insurance. If you match to one of the scenarios below, then I would recommend that you do without life insurance altogether:
- You are single and have no dependents (if no one depends on you, then why would you need to leave someone money?)
- You are married with no kids, and your spouse earns enough to continue paying the bills, even if you’re gone
- You are old and your kids are living on their own. Your spouse can survive without your contributions, whatever they may be.
Basically, if no one needs any money after you pass away, then you really don’t need life insurance. For all the rest of us, it’s time to learn what type of life insurance is best!
The Option of Self-Insuring
Before we get too deep into the various types of life insurance, let’s step back again to understand why we need it. This is how I explain my position to my readers:
“Life insurance is designed to provide money to your family for their survival in the tragic event of your passing.”
One of my major goals in life is to provide for my family. First, this involved getting completely out of debt so that Liz could be a stay-at-home mom. Second, we invested heavily into our retirement fund so that we can fend for ourselves when we’re old (we don’t want to be a financial burden on our children). Third, we’re working to build up our investments in the event of an emergency (like if one of us passes away).
We’re not yet far enough along in Step 3 to ignore insurance, so I am covered with a $100,000 policy that I purchase through work.
The next question for us is:
“Even if we have dependents, when can we do without life insurance?”
Like I stated in the introductory paragraphs, when we stash enough cash away we effectively don’t need life insurance. With enough money, we’re actually self-insuring the life of our spouse and children. So, in the next 5-10 years, Liz and I should have enough money in our savings to do away with insurance!
Types of Life Insurance
Alright, so you have dependents and you’re not yet self insured. You need life insurance. But what type of life insurance should you sign up for?
There are two main types of insurance:
- Term insurance
- Whole life insurance
Term is an insurance policy that lasts for a certain period of time (chosen by you) and then ends, and whole life can last your entire life with a payout upon your death.
Without getting into the details, Term Insurance is the best option 99% of the time. It’s dirt cheap and you get a full payout in the event of your death. Sure, your insurance coverage will drop in the future, but if you have a plan to be self-insured by the time it drops, then this is almost certainly the best way to go.
For Liz and I, the 10-year term insurance option works best for us. By that time, we should have well over $350,000 in our savings and we’ll no longer need the additional coverage. If you’re deeply in debt or just starting your savings, you might want to consider the 20-year policy.
My Quoting Experience With SelectQuote Life
SelectQuote Life is a life insurance sales agency that works with you to find the absolute best life insurance quote for your needs.
I currently have a $100,000 policy through work that costs me $5 a month. It’s pretty cheap, but it’s not guaranteed from year to year. When open enrollment time comes around, I’ll have to sign up again, get reassessed, and then start paying the new rate based on my age, health, and personal habits. It’s cost effective now, but could increase dramatically with a life-altering event.
For this reason, I’ve been hunting around for term insurance outside of my employment walls. My search brought me to SelectQuote Life.
I filled out their simple questionnaire online (it took about 2 minutes), provided some basic contact information, and they said they’d contact me within a couple of days.
Sure enough, a day and a half later, I was contacted by Peter, a friendly and personable young man that asked me about my wants and needs as it related to life insurance. I answered a few more questions (approximately 10 minutes’ worth) and he had my quotes at the ready! The below quotes were sent to my email inbox moments later.
For $9.68 a month, I could sign up for a $250,000, 10-year term policy. Not that’s a pretty stinkin’ good deal. We haven’t pulled the trigger yet, but I can’t see why we wouldn’t sign up with this policy in the near future.
Are You Ready to Get Your Life Insured?
So what about you? Do you have kids, but don’t have insurance? Why haven’t you pulled the trigger? Sure, I realize that insurance can be a bit eerie and it certainly isn’t exciting, but every responsible adult with dependents should have it. Insure yourself for the next 10-20 years. It’s a small commitment, but a huge deal.
This article was sponsored by SelectQuote, but all thoughts and opinions are my own.
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.