No one wants to think about the bad “what ifs” in life, but no one wants to leave their family financially shattered if something unexpected happens either. The question you have to ask yourself when deciding whether life insurance is right for you is: “Is life insurance worth it?”
Tip: A quick and affordable way to get term life insurance is through Bestow. The best part is there is no medical exam required.
Do I Really Need Life Insurance?
This is a question I am often asked. The short answer is, it depends. Anyone who is not self-insured should have life insurance – especially if you have a spouse and children who depend on you. If something unexpected happens your family is going to need stuff, and they’re going to need money to pay for that stuff.
If you’re self-insured, you do not necessarily need a life insurance policy, but before I talk about what it means to be self-insured, let’s talk a lot about the other insurance issues that financial professionals face.
Have to I Buy Whole Life Insurance or Term Life Insurance?
If you are not self-insured, taking out a life insurance policy is a wise decision. If you’ve decided that a life insurance policy is a smart move for you, the first step you’ll have to take is to begin the fun task of shopping around for rate quotes.
Not all insurance companies are the same, so they do not all charge the same rates. For this reason, you have to look around to get the best deal for your policy. When shopping for a life insurance policy, one of the first questions that insurance representatives ask you is whether you want life insurance or term life insurance.
Life insurance is valid for life as a whole or up to the age of ninety-five years. Term insurance policies apply for a specific term. Personally, I’m a big fan of term life insurance. Term life insurance costs less and generally covers policyholders for a twenty-year term, which is long enough to get the kids grown and out of the house and to make a financial plan that allows you to become “self-insured.”
So this is my first piece of advice: If you want to take out a life insurance policy, stay with term life insurance. Life insurance policies are usually not the wisest choice and are not required for most people.
If you choose a policy, browsing at the best price can mean a lot of work. You might want to call a company like Policy Genius that takes your information and does the shopping for you.
The difference in policy rates can be pretty substantial and you don’t want to spend more than you need to on your policy when you could be putting that extra cash toward wealth building.
Now let’s get back to the subject of being self-insured.
What Does It Mean To Be Self-Insured?
Being self-insured means you’ve got enough money to pay for final expenses and to support your family financially for the long-term if something unexpected should happen.
Being self-insured generally consists of having reached a couple of different financial goals.
You’re Completely Debt Free
Part of self-insurance is to pay off all debts – including your mortgage – or at least to have enough money for savings and investment for you can pay off all debt and still have plenty of money to cover your family’s living expenses for one to two decades or more. If you are in debt, you should still consider taking out a life insurance policy.
You Have Substantial Savings and Investments
The other part of being self-insured is having a large dollar amount in savings and investments. By “big” I mean enough to cover all basic and potential additional living costs for at least ten years, preferably 20 to 30 years.
If you are debt-free, this should be a fairly easy number to calculate. Just take the basic monthly living costs of your family, add a ten to twenty percent buffer for unexpected expenses, and multiply the monthly number by the number of months your family should have financial coverage.
For example, if your basic monthly living expenses are $2,500, and you want to spend enough money on your family spending more than twenty years, you take that $2,500, add a twenty-percent buffer, and then increase the amount Number to $3,000 a month. Times as many as twelve (the number of months per year), bringing the total to $36,000 a year. Multiply that number twenty times (the number of years you’d like to be insured) and you would need $720,000 in the life insurance or $720,000 in savings and investments to be self-insured.
Multiply that number twenty times (the number of years you’d like to be insured) and you would need $ 720,000 in the life insurance or $ 720,000 in savings and investments to be self-insured.
That’s a lot of cash, which is why having a sufficient life insurance policy is so important to your family’s security as you work toward becoming self-insured. If you’re close to being self-insured, don’t panic and run out and buy a policy. If your goal is $700k but you’ve “only” got $500k in savings and investments with little to no debt, I’m pretty sure your family will be fine even if your income is taken away.
The point is that in order to feel self-assured if you do not need life insurance to cover your expenses, you will need to take a significant amount of cash with you.
It’s not always fun to take out a life insurance policy, but it’s a good product if you’re on your way to financial independence in the meantime.
How Much Life Insurance Should You Buy
A normal rule of thumb is 10 times your current annual salary. For example, if you make $ 50,000 a year, you should have at least $ 500,000 in life insurance. However, everyone’s situation is different, so here are some things to consider.
How much debt do you have?
If you have a mortgage, credit card debt, or even a car loan, these things could change how much you need.
Consider this scenario:
- Mortgage: $200,000
- Credit Cards: $10,000
- Car Loans: $30,000
This comes out to $240,000 of debt. Therefore, you should consider adding the total amount of your debts to the 10-fold rule. So if you make $50,000 then you would want $740,000 in term life insurance ($500,000+$240,000). Make sense?
How Many Kids Do You Have?
Kids are great, but they can be expensive. Remember that the idea of life insurance is to cover the future income needs of your spouse and your children.
Here are some things to consider:
- Do you want to pay for them to go to college? Maybe factor in about $40,000 per kid.
- Do you want to pay for their weddings? Perhaps, consider $20,000 per child.
- Do you need to pay for daycare costs if something were to happen to you? This could be a big one, depending on the age of your kid and the area you live in.
Obviously there are many more things to consider when factoring in kids, but this should give you an idea of what future costs to consider when purchasing life insurance. So let’s say you have two young kids and you want to pay for all three of these.
So you want an extra $120,000 plus any costs for the daycare. Lets say another $96,000 ($24,000 times 4 years).
This would bring the grand total to $956,000 ($740,000+$120,000+$96,000).
If you want a say in what happens to your family after you’re gone, a will is a great place to start.
My Personal Experience with Insurance
For the longest time, I hated to pay for insurance. It seemed like a waste of money. You pay a company a monthly fee just in case something should happen. And life insurance, do I really need it?
I remember when I got into my first car accident. I was delivering pizzas in college and a car in front of me decided to make a left turn immediately after passing through a green light. It wouldn’t have been as big of a deal, but the guy did not pull all the way into the center lane. This left the right rear of his bumper still in my path.
I thought about moving over one lane, but there was a car on the other side of me so I couldn’t. I ended up clipping his bumper and doing everything I could to not hit another car.
At that moment, I was flooded with emotions of fear and anxiety.
I was just a college student, how I was I going to pay for the repairs?
I had never had $1,000 in a bank account and even paying for things in college was a struggle; that is why I was delivering pizzas in the first place.
Between the two cars, the cost was thousands of dollars.
Luckily I had car insurance and they paid the guy directly for his damage. I decided not to get my car fixed because I still had a thousand dollar deductible.
Why do I tell you this?
Because if I did not have insurance, I would have had to pay everything out of pocket with the money I didn’t have. This is why insurance is so important. The whole point of insurance is to transfer the risk of unexpected events to another person. Whether it be a minor car accident or a tragic accident that changes the course of your life forever.
This is where life insurance comes in
When I got married, I realized that I was now responsible for not just me but my wife as well. I want to make sure that she is taken care of which includes her financial well-being. Then fast forward some years, we now have a newborn baby girl and a two-year-old boy. So not only am I worried about my wife but now my two kids as well.
If something happened to me, I asked myself:
- ‘Would my wife have to work three jobs just to keep things afloat?’
- ‘Would my kids be able to go to college without being saddled with student loan debt?’
- ‘Would they be able to live in an area where the schools are good and get a quality education?’
- ‘Would they have to downsize from a house to an apartment?
- ‘If so would they have to get rid of the dogs?’
- ‘Who is going to raise my kids if my wife is working three jobs’
Have you ever asked yourself these questions? Or maybe similar questions about how your family would be affected if something happened to you?
These questions were enough to motivate me to find out how to protect my family if anything were to happen to me. When I started to do my research, I found that there are two main types of life insurance: term and whole. I found that whole life insurance is high in fees and is more of a permanent product where term life insurance is very low-cost and for a selected period of time.
Why I Went with Term Life Insurance
My goal is to reassure myself if I have enough money to look after my family without needing life insurance. However, this will not happen overnight. We have a mortgage that we plan to pay off in the next five years and we do not have much in terms of investments at this time, so we need a short term solution. And by short, I mean twenty years.
There are many companies that offer term life insurance, and I think the best way to get a quote is to use a tool called Policy Genius. You do not sell life insurance yourself, but you get competitive offers from several life insurance companies in real-time, some of which you already know and probably never heard of before.
In the truest sense of the word you can receive an offer within 2 minutes, as I have just got bellow:
This is life insurance worth $500,000 for 20 years for less than $25 per month. Most people spend eating out just one time per week!
Why do we pay to ensure things like our homes, cars, heck even airline tickets or shipping things via the mail? But we don’t put a priority on protecting the things that matter most.
When I think about the importance of protecting my family, this is a small price to pay to have peace of mind that they will be covered if anything were to happen to me.
Is your family insured in case something should happen to you? If not, don’t put this on your to-do list for next week. Click here and take two minutes to protect your family TODAY.
Do you have term life insurance? If not, have you ever considered getting it?
Note: The situation of each person is unique. You should, therefore, consider speaking to a licensed professional when making serious financial decisions. It’s also worth noting that requesting an offer takes about 2 minutes, but the life insurance process takes longer. Every company has its own process when it comes to issuing the actual life insurance.