How would your family survive financially if an accident happened and you die prematurely? Would they be forced to sell your home because they can’t afford the mortgage? How else would life change without your income?
Risk management is one of the six key areas that make up any comprehensive financial plan and today we want to focus on life insurance because September is life insurance awareness month.
I know – it’s never easy to discuss difficult topics like death but if these last few months have taught us anything, life is uncertain. Crazy things can happen at any time which is why it’s important to plan ahead.
Today I want to answer some of the key questions we regularly receive around life insurance:
What’s the purpose of life insurance?
Simply put, the purpose of life insurance is to protect your loved ones. If you have loved ones who are financially reliant on you, then you need life insurance. If you are reliant on your spouse’s income, then your spouse needs life insurance.
How much do I need?
The rule of thumb is typically 10-15x your income, but the answer should be more nuanced because your age and stage of life plays a significant role. If you’re the sole income earner for your family, you have young kids at home, and have a large mortgage and other debt, you might need more. If your kids are out of the home and you’ve already saved a significant amount for retirement, then you probably need less. It’s also not about how much you can afford. It ultimately boils down to what you want to protect against and it’s a math calculation from there. If you don’t know how much coverage you need to protect your family, don’t hesitate to reach out!
Is life insurance expensive?
Maybe – if you’re healthy, then most people are surprised by how cost efficient it is to buy a level term insurance policy. For example, for a health 35 year old man, a 20 year level term policy with a $1,000,000 death benefit can cost as little as $34/month. For a woman, the cost can be as low as $28.38/month.
Do I need more insurance than my employer provides?
Yes – most employers only offer a set amount of $50,000-100,000 or 1-2x your salary. As we mentioned above, most people need more than this to protect their loved ones. Many employers do offer the ability to purchase more coverage which can be helpful. One item to consider is many times the coverage through your employer is not portable so if you begin working for a new company, you can’t keep the life insurance coverage. If your health has changed for the worse, then you might not be able to buy insurance or at the very least, it will be more expensive. By purchasing your own policy outright rather than through your employer, it will ensure that you can keep the coverage no matter how many times you switch jobs during the term.
How often should I review my coverage?
We recommend reviewing your insurance coverage annually or as life changes. If you buy a new home or have a child, you should review your coverage.
If you have additional questions or need help analyzing how much insurance you need, please contact us and we’ll be happy to help!