Answer: How Much Term Life Insurance Do I Need to Buy?

From a question posted here:

Thank you for all your help in my previous question. After meeting with the agent, I’ve decided on term life insurance over whole life. But I am still not sure how much term life I should buy. Should I buy as much as I could afford or some specific amount?

My answer(edited a bit):

That question is far too open-ended.

Are you married?  If yes, are you the primary breadwinner?  Do you have children?  Investments?  Savings?

Here’s my situation:

I am married, with three children.  I have the primary income.

We have a mortgage, a car payment, and some consumer debt.

I added up all of the debt as my base level of term life insurance.  My family will not be burdened with debt if anything happens to me.

To the base level, I added 5 years of my net income.  Without changing a thing, my family will be supported exactly as is for 5 years if I die.   They won’t, however, have the same level of expenses, due to the base level of insurance paying off all debt.   All of my living expenses also evaporate.  For example, there will be one car sold, one less mouth to feed and body to dress, etc.

I figure with the lower expenses and no debt, my insurance will support my family for 10 to 15 years if my wife manages the money right.   If she continues to work, it should last almost forever.

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Late Pass: Insurance for the Terminally Ill?


Insurance (Photo credit: Christopher S. Penn)

This is a guest post.

Uh oh. Not only have you put in decades of loyal service for a company that does not offer a life insurance policy to employees, now you have a terminal disease that has numbered your days. You always meant to get a life insurance policy at some point, but it was just one of those things that there was never enough money left for at the end of a month after bills, groceries and just enough fun to make worthwhile.

Your life is one that needs insuring to protect your family following the now-inevitable, but has that ship sailed? Is it possible to make up for lost time by obtaining a life insurance policy as a terminally ill patient?

You already know that insurance companies are experts at assessing risk. Each potential policy holder is effectively examined to determine their likelihood of living a reasonably long time, and a terminal illness is an obvious negative in this department.

Many insurance companies will be hesitant to offer a comprehensive policy that they know they will have to pay out in fairly short order, but you may be able to get a type of life insurance known as graded premium life insurance.

With graded premium life insurance, you pay a monthly premium to retain coverage. If your illness should terminate within two years, your family will receive all the premiums you have paid as a benefit. Should you last longer, the insurance provider pays the full value of the policy. This is a compromise that gives you the peace of mind that a life insurance policy can provide while allowing the insurance provider to minimize their risk.

These policies typically have cash values ranging from $10,000 to $50,000, so while they might not guarantee the permanent stability of your family, it will offer them much-needed assistance through what is sure to be a difficult time in their lives. Premium amounts vary by age and relative health, but generally the closer you are to qualifying for a payout, the more it costs to enter the lottery.

Life is unpredictable except for its certain end, and sometimes this reality leaves us less prepared for the future as we would like. Fortunately, a terminal illness does not make a person completely uninsurable in most cases. Of course, it is much easier and less expensive to get life insurance as a person who is not dying, so the best strategy may be to invest before your health becomes an issue.

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This is a guest post.

English: $10,000 life insurance policy for Pre...

English: $10,000 life insurance policy for President James A. Garfield, the twentieth President of the United States. Discovered in a family scrap album dating from the late 1800’s. (Photo credit: Wikipedia)

In today’s day and age, nearly everything that we do in our day-to-day lives can be done online and we’ve come to not only expect that, but somewhat rely on that convenience. Insurance, however, is kind of a grey area when it comes to online purchases – no matter what kind of insurance you’re purchasing. After all, an insurance policy is no small purchase; it’s major and can have a profound financial effect on your life, and the lives of your loved ones.

Think about it like this – how wary are you of even just making a small eBay purchase? Most of us look at the seller’s rating, read their feedback, and try to accurately gauge what the risk is compared to the reward. This same mentality should apply to making a life insurance policy online and is far more deserving of it. You can follow this link to learn more from Suncorp today.

This isn’t to say that making an online life insurance purchase can’t be beneficial; depending on your situation, it can be very beneficial, indeed. However, it is going to take substantially more research on your part to get to where an insurance agent might be able to get you, sometimes in half the time.

Pros of Buying Online

One of the most alluring reason for life insurance seekers to buy online are the prices, the comparing conveniences, and sometimes the lack of medical exam. There’s plenty of aggregator sites out there that can take a sampling from across the internet and return you a quote within a matter of seconds – how’s that for convenience?

Probably the most favored feature, though, is the comparison shopping. Once an aggregator provides you with a slew of options, with a wide variety of price points, you’re able to compare all of the details among them, quickly and easily. Something that would easily take your hours if you were having to do all of that research yourself, one by one.

At the minimalist level, though, you’ll often find that some individuals just truly feel more comfortable making insurance purchases from the comfort of their own home, without any agents or appointments. Either because these situations make them nervous, or because they simply don’t have the time to sit down with an agent.

Cons of Buying Online

One of the big ones revolves around the last “pro” that I mentioned – if you don’t have the time to sit down with an agent for a limited amount of time, and let them do all of the work from there, you certainly don’t have the time to handle all of the research that comes along with going through this process on your own.

Also, you shouldn’t always assume that shopping around yourself is going to save you money with it comes to life insurance – after all, life insurance agents have personal connections, favors to call in, and think-on-their-feet knowledge that might drum up an innovative solution; something that online aggregators can’t do.

Furthermore, building that one-on-one relationship with your life insurance agent can be incredibly beneficial. For one thing, you can have every last little thing that you don’t understand about the fine print thoroughly explained to you – this is a big one. Another thing is having such a relationship with you agent, that you can call them at any time, when anything comes up, or when you need sound financial advice. Try calling an aggregator and see if you get much beyond the auto-answering system – I assure you, it’ll be a challenge.

If You Do Decide to Buy Online…

  1.      Don’t Give Out all of your Personal Information – No matter what the insurer tells you, you don’t need to provide any crucial personal data just to obtain a quote.
  2.      Enlist the Service of an Aggregator that Can Give You a Wide Variety of Options – Comparing an insurer there and an insurer there, means very little actually. You need a plethora of results in order to make a decision that will best be tailored to your situation.
  3.     Don’t Get Swindled – Make sure that you’re getting the right information, from a reputable company, that doesn’t deal in the ole’ “Bait-and-Switch”; which refers to when crooked life insurance agents inflate your worth and buy you either a higher policy than requested, or even a different policy entirely – all for their commission!
  4.     Thoroughly Research all Potential Candidates – Obtain the financial rating of any establishment, online or otherwise, to find out more about the reputability of both.

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A Problem With Life Insurance

It’s pretty common for someone to buy a life insurance policy and make a minor child or grandchild the beneficiary.

English: $10,000 life insurance policy for Pre...

English: $10,000 life insurance policy for President James A. Garfield, the twentieth President of the United States. Discovered in a family scrap album dating from the late 1800’s. (Photo credit: Wikipedia)

Bad idea.

The reasoning is usually something along the lines of making sure the money goes with the kid, no matter where he ends up, but that money is mostly worthless until the kids grows up.   With the UGMA/UTMA (Universal Gift/Transfer to Minors Act) laws, depending on your state, it can be nearly impossible to access that money or use it for the support of the child.

  1. For example, in Minnesota, I would have to go through the following steps:
  2. Complete a Petition for Appointment of Guardian and Conservator with a $322 filing fee and request it be reviewed without a hearing.
  3. Notify any interested parties.
  4. Consent to and pay for a background study.
  5. Establish a custodial account at the bank and maintain separate accounting for the money.

That’s just to access the money.  As a conservator, I’d be able to use the money for “support, maintenance, and education”, but that does not include investing in a 529 college fund.   I could theoretically invest in ultra-conservative growth funds, but if the investments shrink, I could be on the hook for the difference.   I’d be a “conservator”, charged with conserving the asset.

After all of that, when the kid turns 18 (or 21 depending on the setup), the money is his to do with as he pleases.

Have you ever met an 18 year old who made really good decisions about money?   I had a friend who had a settlement trust pay her a lump sum at 18, 21, and 25.   Each time, she bought a new car and partied with her friends for a month before the money was gone.    That was nearly $100,000 down the drain.

It’s a much better idea to visit an attorney and set up a trust.  Make the trust the beneficiary of your life insurance policies.  Then, define who will be the trustee under what circumstances.   That way, you can make sure your kids and grandkids can actually be supported by your money.

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