If
you have dependents — you need Life Insurance
If
you have children or people who depend on the money you earn,
you need life insurance. Its primary purpose is to protect your
income. Life insurance helps those you care about keep on living
as they would if you were still earning a paycheck.
Life Insurance helps replace your paycheck if you aren’t
there to earn it
60%
of annual income times years to retirement gives you a reasonable
estimate of the amount of life insurance to buy. It takes your
salary, assumes some normal raises over time, and adds the value
of your employee benefits, like healthcare. Then it subtracts
the effect of taxes, and what it costs your family to have you
around.
Some life insurance is better than no life insurance
Some
life insurance is better than no life insurance. A good starting
place is coverage that equals outstanding debt (including mortgage,
car payments and student loans) + 5 years of annual salary. Use
the average American salary, $40,000, to represent your income
in the estimate above if you’re a stay-at-home parent or
currently in-between jobs.
Life insurance is less expensive than you think
Many
people think life insurance is much more expensive than it is.
In fact, many people can get term coverage from a quality company
for a surprisingly low price. A healthy 35 year old can pay as
little as $30 a month for $500K of coverage1. Life insurance does
get more expensive as you get older. It makes sense to buy as
much as you need while you’re young and healthy.
Life insurance is a smart financial move
To
get the amount of coverage we recommend, you can expect to pay
about 1% of your annual salary on the annual cost of term life
insurance. (Spending 1% of your income to protect years of income
is a pretty good deal.)
Make sure you know how much life insurance you get at
work
Many
people assume they have more coverage at work than they really
do. We recommend that people look carefully at the amount of coverage
they get, then buy additional life insurance, either through their
benefits plans at work or on their own, to make sure they have
the right amount of coverage for their unique needs.
Life insurance needs change over time
Life
insurance needs change over time, because of things like new family
members, a new job, a move, or even a raise at work. Review your
protection every year during the benefits enrollment period at
work or when you receive your Social Security statement in the
mail.
Term Insurance is an easy and inexpensive way to get started
Term
life insurance offers more coverage for less money. It is an easy
and cost-effective way to get protection in the short run. Because
term insurance runs out at the end of the term, use it to protect
needs that you can anticipate—like paying off a mortgage
or funding college for your children.
On
the other hand, permanent life insurance can also be an important
part of your lifetime financial plan. It’s flexible, and
can help you meet a number of important goals, including protecting
your income building equity, providing an additional source of
retirement income, and leaving a financial legacy for your loved
ones. You can supplement retirement income by taking loans or
withdrawals from accumulated cash value (although the policy’s
cash value and death benefit are reduced by the amount taken,
plus any loan interest charged).
