How Much Life Insurance Do I Need?

Written by Strahan Financial Services

How Much Life Insurance Do I Need?

How much life insurance do I need? If you had one chance to change the future, what would you do? If you knew that today, right this instant, was the last chance you would ever have to purchase protection for your family…how much life insurance would you buy? If you knew that tomorrow, you would no longer be able to provide an income for your family,…how much would you put aside? If you knew that taking care of your future needs depended on what you could do today, …how much would you save?

With so many factors and assumptions, there are many possible answers. It merely takes a LOT of money to replace a breadwinner’s annual income. Today, about 20 times, your income is recommended. Plus $100,000 for each child going to college. For example:

The top choice of life insurance policies sold in American today is level term.  Your premiums are guaranteed to stay the same for a set number of years, and the death benefit does not decrease.

How Much Life Insurance Do I Need? Other Considerations

  • The lump-sum survivor needs often include immediate cash to pay last expenses, to liquidate consumer debt, to provide a fund for emergencies, to redeem a mortgage, to provide dependent care, and to pay for education.
  • Seventy percent of a prospect’s lifetime medical expenses are used in battling a final illness.
  • One month of survivor income is needed to meet ongoing income arrangements.
  • A general guideline for estimating immediate cash needs is 30 percent to 50 percent of the family’s gross income.
  • A family’s debts don’t die when the breadwinner dies. Debts pass down to the survivors.
  • Establishing an emergency fund for survivors helps provide some of the financial flexibility lost following the death of the breadwinner.
  • A general guideline for estimating emergency fund needs is six months of current gross income.
  • Providing a fund for mortgage redemption should not require that the mortgage be redeemed. Instead, it should give the survivors the option to redeem it.
  • Dependents may include not only minor children but also aged parents and dependent siblings.
  • When establishing an education fund, the needs of the surviving spouse, as well as the education needs of children, should be considered.
  • How much life insurance can you purchase?

How Much Death Benefit do You Need?

When considering how much life insurance is needed, if you are not sure, apply for the highest Death Benefit to be considered.  There is no cost, obligation, or disadvantages.  You can always take a lower death benefit after the policy is approved. If you want to increase the death benefit after approval, the process restarts, and initiating coverage is significantly delayed.   All final decisions regarding the exact benefit amount and term length are made at approval before your new policy is active. So, nothing is carved in stone at this point.

If you are not sure how much Death Benefit to keep in force once approved, start high, you can lower it later.  You can reduce (but not increase) the initial Death Benefit in future years. So, it is always best to begin coverage with the highest and longest Death Benefit you need.  (Premiums are proportionate, so ½ the DB is ½ the premium.

A longer-term period is a higher premium but a small price to pay for the flexibility to continue coverage as needed.  Although lifestyles usually increase with income, you can reduce the death benefit (½ the coverage is ½ the payment) or cancel anytime.  If you end up needing more extended coverage, you’ll be pleased with the huge savings compared to the high cost (or worse if you cannot qualify for the best health rate class) of new coverage at an older age.

Locking in now assures availability (you could be declined in the future) and the lowest long-term cost might. You decide (not the carrier) whether to reduce or end the coverage in any future year. Once the policy is in force, the carrier is locked in, not you. Make sure you choose a well-known, highly rated life insurance company.

The Impact of Inflation on Your Death Benefit

This chart shows the impact of inflation on the face amount of a level death benefit. Keep in mind that most people earn more income as they get older. Some of the increase in income is due to inflation, but some are due to job advancement. As your spouse and children become used to a higher standard of living, the need to increase your life insurance will occur. Therefore, it is highly unlikely that you will want to reduce your insurance coverage before retirement. It is more likely you will add additional coverage as you move forward.

 

How Safe Are Insurance Companies

The recommended companies are extremely safe, and A.M. Best rated in the top 4 (A++, A+, A, A-) categories considered to be ‘Superior’ and ‘Excellent’ (so all are higher-rated than the best Bank).  Guaranteed Term insurance policies in the US have a perfect safety track record with no failures.  Research shows no company has ever 1) raised a guaranteed premium, 2) changed the death benefit, 3) canceled coverage if premiums paid on time, or 4) not paid a legitimate claim.

Lock in Coverage Today and Replace it in the future for a lower rate.

Get the best (and longest guaranteed premium years) coverage at the lowest premium available.  Policies are disposable.  If you can qualify for a lower premium in the future, place the new policy in force and lapse the old one.  Waiting to get a better deal based on improved health is extremely risky and never a good idea.

Remember, life insurance premiums increase for older ages. And considering the possibility that a health issue fails to improve, often, a new problem (maybe just a minor ailment not conclusively diagnosed or a traffic ticket) prevents approval. You can end up paying higher premiums or can be declined coverage.

If you lock in the more extended coverage needed now, with health improvements, you should only have to pay the higher premium for a year or so before replacing it with a lower-cost policy.  If things change or don’t work out, you’ll be pleased you locked in more extended coverage.

The Truth About Group Life Insurance 

The truth is that your life insurance coverage through your work, known as group coverage, may not be protecting yourself and your loved ones as much as you think. Review how much your employer-paid insurance provides and calculate whether this is enough to keep your family comfortable through the difficult times if you’re not around.

Group life insurance is always both expensive and flawed.  Unlike low-cost individual Term Life contracts, Group certificates are not guaranteed & not portable.  Group charges may seem reasonable, but rapidly increasing premiums every five years will become 4-8 times higher in 20-30 years!)

Avoid Captive Agents   

A captive agent is just that, captive! They must offer only products from the company that has “captured” them. Unfortunately, this limits your choices at finding the best company that fits your situation. Many larger agencies that always advertise also only represent a handful of companies. The key to finding the best term life for physicians is to use an agency that represents multiple term life insurance carriers.

We only work with the best life insurance companies. Many of these companies have been around for a very long time are very well known and highly rated. We only use the top 1% of the 852 life insurance companies in the U.S.  Many use the accelerated underwriting process.

Why Use Strahan Financial Services/Life Insurance for Parents?

We work with a team of highly talented individuals committed to providing you with unmatched professional service with over 250 years of combined experience. The quote you receive is 90% of the time your actual cost. We have worked successfully with the website “Term4Sale” for many years.

  • We are professional
  • We are knowledgeable
  • We use the latest advanced technology
  • We are customer-service driven
  • We will earn your business
  • We want to deliver beyond your expectations
  • We want to have earned a genuine “Thank you!” at the end of the process.
About Strahan Financial Services
About Strahan Financial Services

We work with individuals across the nation to secure the best life insurance rates.

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13 Comments

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