How Much Life Insurance Do I Need?

With so many factors and assumptions, there are many answers. It simply takes a LOT of money to permanently replace a breadwinner’s annual income. About 20 times your income is recommended (adjusted for your financial situation). According to David F. Woods (President, nonprofit Life & Health Insurance Foundation for Education, Washington, D.C), most Americans are underinsured and unaware because how much insurance they need was improperly analyzed. So consumers often purchase an inadequate amount of coverage. Here’s what a death benefit provides:

A. Death Benefit – Coverage Amount

$1,000,000

B. Interest Rate – Safe, Long Term Average

4%

C. Income Replaced – Annual Amount Family Lives On

$40,000*

*NOTE: For simplicity, the calculation assumes a conservative interest rate to provide taxable income without ever invading principle. Inflation, college, retirement income, & emergencies will all increase the income needing replacement, while spendable assets will decrease the need. This provides a starting point, not an answer.

 

Level Premium

Your premiums are guaranteed stay the same for a set number of years.  Term premiums are proportionate (double the coverage is about double the premium), so you can closely estimate a higher or lower death benefit for any product. 

How Much Death Benefit to Apply for?

If you are not sure how much DB to request on the application, simply apply for the highest DB to be considered.  There is no cost, obligation or disadvantages.  When the policy is favorably approved, you can always take a lower DB (and also choose different Guaranteed Level Premium years).  If you want a higher DB after approval, the process restarts and initiating coverage will be significantly delayed.   All final decisions regarding exact benefit amount and term length are made at approval before your new policy is put in force.

If you are not sure how much DB to put in force once approved, simply start high & reduce later.  You can reduce (but not increase) the initial DB in future years, so always best to begin coverage with the highest and longest DB you need.  (Premiums are proportionate, so ½ the DB is ½ the premium.  Once the policy is in force, carrier is locked in, not you.) 

How Much Death Benefit to Apply for?

Longer (more years) is better, and the higher premium is 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 longer coverage, you’ll be very happy 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. 

Carrier Safety

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 Today and Replace 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 at some future date, put 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.  Besides increases for an older age and the possibility that a health issue fails to improve, oftentimes a new issue (maybe just a minor ailment not conclusively diagnosed or a traffic ticket) prevents approval, meaning you end up paying higher premiums or are denied any coverage at all. 

If you lock in the longer 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 very happy you locked in longer coverage. 

Supplemental Group Life Insurance (SGLI) is Overpriced by 2-800%.

It is never recommended to pay for this extremely high cost employee ‘benefit’.  SGLI is always both expensive and flawed.  Unlike low cost individual Term Life contracts, SGLI certificates are not guaranteed & not portable.  (SGLI charges may seem reasonable, but rapidly increasing premiums every 5 years will become 4-8 times higher in 20-30 years!) 

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