If you don’t have life insurance and you have a family that you support, today is your day. Part of preparation is for our benefit and part of it is for the benefit of our loved ones. In this case you and I won’t have any tangible benefit from purchasing life insurance, but the peace of knowing that our loved ones will have a nice financial buffer is pretty nice.
Video Intro
Just like the FLOP we mentioned the other day, the hope is that you will never need to use this. But if that day were ever to come, there would be some people in your life who were really glad that you and I spent an hour or two taking care of it.
There is a lot of debate about all the details of what kind and how much, and everyone’s situation is unique. So just take what I suggest as an opinion and do more homework to figure out what kind you need.
What kind do I need?
For most people and most situations I think Term Life insurance is the best bet. It is the cheapest kind of insurance and the easiest to understand. It is as simple as agreeing to pay $100/year for 10 years to have $100,000 of coverage. Whole life (and most other forms) are a bit more complex and can offer some benefits for certain situations, but again term is normally your best best.
So how much do I need?
This is like asking what is a good salary? Everyone’s definition will be different. The rule-of-thumb that I have commonly heard is 8-12x your annual salary (after tax). But I suggest you think through your particular situation and think through what your family would need.
In our particular case, I bought a term policy that would pay off the house and cover my funeral expenses. This is far less than the 8-12x figure, but because we don’t have kids yet and my wife earns an income she would easily be able maintain her standard of living if the house were paid off.
Your situation will be different. But just spend a few minutes discussing and thinking how your family would get along if you left the earth a little early.
Remember, don’t get hung up on the details. The key is just to first make sure that your family is covered, then you can split hairs on the details. My hunch is that most of our loved ones won’t give a lot of thought to how big the life insurance check is, they will just be grateful that it is there.
How much does it cost?
I was surprised how cheap term-life insurance can be. Granted, I am very young (30) and in good health, but relative to a lot of other expenses we all have it is really cheap. I think I am paying $123/year for my policy – which comes out to about $10/month.
Homework
- Talk to your spouse and figure out how much insurance you think you need. Use this calculator and learn more if needed.
- Get a life insurance quote online or find a trustworthy insurance agent (you can use the form below to find someone from our partner Christian Network).
{ 7 comments… read them below or add one }
Hi Bob. Great video! I noticed that the “calculator” and “learn more” links above send us to Bankrate. But, there is a better place on the web for this information that is non-profit and dedicated to life insurance (not necessarily primarily a lead source for financial services as Bankrate is). Check out http://www.lifehappens.org. This is a non-profit organization with the only agenda being to help people get life insurance right (along with some other insurances). Their information is the best on the web for life insurance. Since their information is unbiased, and since they are not sales agents and not a financial services marketing firm, their information can be trusted! Check out http://www.lifehappens.org! (ps, I’m not affiliated with them at all, but send people to them all the time).
These articles have helped me see the reality and importance of preparing my resources for those I care about beyond my own death. The fact that your wife and children’s protection and provision were a motivation for a life insurance policy and organizing everything onto “one page” reminded me of 1 Timothy 5:8. For single guys, how can we think about financial organization in this way? Is it too soon to think about life insurance?
Hi Bob,
It’s critical to point out the importance of PROPER protection for the family left behind. The $10/mo quote you mention sounds like a term policy with a ‘teaser’ premium for a certain amount of time. Seems super-affordable, until you realize the premium balloons down the road to make up for that underpayment. Much like the ARM loans that caught so many homeowners off-guard. This can leave families just as vulnerable as an exploding interest rate!
Using your example, say that low payment is locked for only 10 years. In the meantime, you have child(ren) and your protection needs change, so you seek to update your coverage. By this point, health factors (high blood pressure, cholesterol, unknown hereditary, etc) could make you UN-insurable, not to mention potential external impacts to your mortality (accidents, surgery, infection, etc).
So now you’re faced with a ‘something is better than nothing’ life insurance policy, with an indeterminate, ever-escalating payment.
For folks who are young & healthy, it makes most sense to lock in a low premium that will remain fixed for the entire term of the policy (30-35yrs). Depending on coverage needs, it will still be affordable (<$50/mo), and provide additional peace of mind.
Nik, the 10-10-10 figure I was talking about wasn’t an actual quote, it was an example just attempting to show the simplicity of term insurance over most other forms of life insurance. That said, I think having proper protection is important but still less important than just having something. There are far too many people who are confused about the whole topic, so they just ignore it completely. I would much rather someone (who wouldn’t otherwise make the purchase) be a little under-insured, than not have anything at all.
Going with an individual term policy over group or employer term policies helps avoid the “teaser premium” issue. Of course, the best thing to do when shopping and/or purchasing is to ask “does this premium ever change?” Work with an agent you feel is trustworthy (be in business with the right people) and MANY common problems are avoided!
-Tom
While I’m quite confident I could make it w/o the life insurance on DH should he pass on early, I do have a lot more security knowing it’s there.
im still a little skeptical about life insurance.after taking the advice of some respected people in the finance industry,im in two minds whether to set aside a certain cum of money in a seperate account that will mature over time,and use this as my backbone in case of trouble times