How Much Should You Spend on Life Insurance?
When it comes to the many types of insurance that the average person must purchase, car and homeowners insurance are often at the top of the list. What about life insurance? Many people minimize the importance of life insurance, and if it isn’t offered at their place of employment, then many people may forgo purchasing it. However, no one can ever expect when an unlikely event might occur and their untimely death may come about. This is why it’s essential that you look into obtaining a high-quality life insurance plan, but how much should you spend? Here is an overview of life insurance and what to consider when purchasing a plan, so you can accurately determine how much you should spend.
What exactly is life insurance?
There are many different types of life insurance plans, but regardless of the type, the idea is that whomever you choose as your beneficiary will receive a lump sum payment if you were to die unexpectedly. Most insurance companies make policies void if a covered individual dies via suicide. In most cases, suicide is not the cause of a covered person’s death, and the lump sum payment enables the person’s family to be able to maintain their current lifestyle after the loss of income that the deceased provided.
Who needs life insurance?
It’s a good idea for everyone to have life insurance, because funeral expenses can be pretty pricey, and no one can predict when they might become ill or injured and end up dying as a result. However, if a single person without a family or any dependents is seeking a life insurance plan, then it’s not necessary to purchase a plan for more than $10,000 or so, if that. The average cost of a funeral and burial is about $11,000 or $12,000, so a life insurance plan shouldn’t exceed this amount for a single person with no dependents.
On the other hand, for an individual who has a family, and therefore one or more dependents, then he or she needs to spend more on a life insurance plan that would pay out a much higher amount. The idea is that the person would need enough life insurance to cover their funeral and burial, with enough money leftover so their dependents can continue to pay bills that were paid by the deceased person.
Determining how much life insurance is needed?
It can seem like a real challenge to determine how much life insurance is needed, but it doesn’t have to be. The goal is to figure out how much money your loved ones will need to maintain their current lifestyles after your death. Most financial experts recommend that an individual purchases up to 15 times their annual income in life insurance, as this would allow most dependents to live comfortably after a loved one’s death.
However, everyone’s situation is different, and some people may need to purchase more or less life insurance. There are financial planners who can assist you with deciding how much of a life insurance policy you need to purchase. You might also want to have a sit-down with your significant other and maybe obtain advice from a licensed insurance agent, who can provide you with some insight.
Cost of life insurance?
The cost of life insurance will vary significantly and will depend on the specific type a person decides to purpose. The types of life insurance are:
- Term life insurance – this type of life insurance covers a person for a pre-determined period of time, or a “term”
- Whole life insurance – this is a contract in which the premiums include insurance and investment elements
- Universal life insurance – this is a type of life insurance that earns cash value
- Variable life insurance – this is another type of life insurance that builds cash value
- Indexed universal life insurance – this is a third type of life insurance that carries a cash value
- Simplified issue life insurance – this is a type of life insurance that doesn’t require a medical examination
- Guaranteed issue life insurance – this type of life insurance is guaranteed for everyone, of every age and health, and a medical exam isn’t required
- Group life insurance – this is a type of life insurance that covers an entire group of people
There are many factors that are taken into consideration when it comes to determining the cost of a person’s life insurance policy. Age and the state of a person’s health are two of the most important factors that are considered when determining rates. A younger person in excellent health is going to pay significantly less than an older person with one or more chronic health conditions. In fact, most life insurance plans require that those signing up for coverage undergo a medical exam, although this can be bypassed if a person agrees to pay a higher premium.
As you can see, not everyone needs very much when it comes to life insurance, but if you have determined that you need a more significant plan, then determining how much of a policy you need is important. You don’t want to obtain a plan that won’t provide enough coverage for your family in the event of your untimely death, but there is also no need to purchase a plan with the intention of making your family millionaires after your death, either. If you’re struggling to determine how much you should spend on life insurance, then a professional licensed insurance agent should be able to guide you.