Comments on: How Much Life Insurance Do You Need?

By: Ryan

Ryan — Mon, 15 Feb 2010 14:20:11 +0000

Dad S, Term insurance should be cheap enough that adding a few years to your policy is probably worth it. You never know what will arise between now and then and having that extra time on your policy will probably help you sleep better at night. With most term policies you can drop it if you no longer feel like you need it. But adding a few years to your policy later on means you will pay premiums at the new rate. (for example waiting five years to change your policy might be more expensive than getting a longer term now).

By: Dad S

Dad S — Thu, 11 Feb 2010 19:27:48 +0000

I am looking at buying term insurance to replace income lost if something should happen to me (wife works but wish to leave her income out of the equation)…I make about 6K a month after tax but wondering how long of a term i should get…I have 15 years to retirement but have young kids, 2 and 5…since the youngest will still only be 17 when i retire, should i opt for the longer 20 year term or stick with the 15 year term to retirement? Also, as we have some assets built up, i am really only concerned about near term unexpected events and making sure the kids are comfortable through college…What advice can you offer?

By: Ryan

Ryan — Tue, 26 Jan 2010 03:34:33 +0000

Teacher mom, It is very difficult to answer your question because you don’t give enough information about your financial situation. The rule of thumb used in this article is 17 times the annual salary of the person in question, but that formula doesn’t always work for everyone or each situation.

You need to consider how much money you would need if one of you were to pass away. Take a look at your current expenses, possible future expenses (funding college, insurance, moving, etc.), possible changes to life situation (remarrying, for example), and try to determine how much you would need above your current income to reach those future expenses. You might wish to consider how much it would take to pay off any debt you might have, including your mortgage, then go from there.

In any calculation I would do, I would consider how much it would take to payoff the mortgage (or all debt), then add a buffer based on the assumption of how much I would need to maintain a decent lifestyle with my current income from working, with no house payment. There is no “exact’ formula because each situation is different, just guides that might make things a little easier. I hope these tips help.

By: teacher mom

teacher mom — Tue, 26 Jan 2010 01:27:00 +0000

I am trying to figure out how much life insurance to take out on my husband. He is an executive chef with no benefits. I am teacher with great benefits that will help my husband if something was to happen to me, me on the other hand…We are both 30, excellent health, two kids (3 and 4) what is a good plan?

By: My Journey

My Journey — Fri, 07 Aug 2009 18:02:56 +0000

Miss J,

Lot to digest but I feel you deserve some insight:

1) Life insurance is income tax free. As opposed to what most finaicial planners tell you – it is 90% of the time included in your estate for estate tax purposes (there are advanced ways to get it out of your estate). So, if you had assets totalling $500,000 and you had a $1,000,000 policy. You would pay 0 in federal estate tax (because you can leave up to $3.5 Mil to a non-spousal US bene) but you might hit a State Estate Tax if you live in one of 18 states which are decoupled.

2) Second your end number is $1.67mil or something doesn’t into account future growth of that money. If you are trying to get how much you need that way (e.g. Income Replacement) you need to do the present value of that number given a specific growth rate (I would use something really low because the kid is going to have to be conservtive so like a 2.5% NET to 3.5% NET).

3) In terms of the mortgage you should build an excel spread sheet seeing how much that takes off your husband’s need.

4) As you can tell from the above comments and my guest post on this blog – I like whole life insurance because you know why – 99% of us (including myself) do not buy term and invest difference! How much cash do you have built up in the WL? If it was int he last 2 or 3 years the number is 0, but if its 10 years deep you’ll be suprised how much cash is there, you can then do a lump sum 1 time pay off of UL or diff type of term.

JUST SOME THOUGHTS!

By: Miss J

Miss J — Fri, 07 Aug 2009 17:36:30 +0000

Hey there. Insurance shopping. We have one child, 3 months old. Anyways…Are life insurance benefits taxed? Becasue my before tax and after tax incomes are VERY different and that makes quite a difference in how I calculate the “rule of thumb”.

Our son needs 21 years of “income replacement”. I make $78,000 a year (pre-tax) so I would need $1,638,000 in life insurance!? That seems like an awful lot… If I calculate it post tax then it’s still about 1.2 million which still seems like a lot…but maybe I’m just being naive about the whole situation…

Also, providing that if I were to die, my husband could take a lump sum of cash and pay off our 30 year mortgage we would save an INCREDIBLE amount on interest…so doesn’t that reduce the amount of life insurance we need? For instance our $235,000 mortgage comes out to about $1,600 a month of which a whopping $1,100 goes to interest right now. I know that as time goes on less and less of our payment will go towards interest…but still this mortgage interest factor must affect the calculation some how?

Currently I have 600K worth of coverage. 100K through work and a 500K whole life policy (don’t get me started on that…I feel really ripped off by the financial planner who sold it to me…but I digress). I feel like I need a little more coverage but not DOUBLE…what do you think?

By: Dez

Dez — Wed, 15 Jul 2009 23:22:02 +0000

Humm, I take you IF I don’t have dependents but I have a sizeable estate, I don’t need insurance to pay taxes for the beneficary? IF I’m poor I don’t need insurance to pay for a funeral? If over 65 and I am married, my kids are grown, my spouse wouldn’t need to replace the lost income from my soical security nor would my spouse need to live after I’m gone?

I’ve never seen such a crazy statement.

By: Bret

Bret — Fri, 26 Jun 2009 04:16:17 +0000

I recently started an internship with a mutual company and am on the (never ending I assume) path to learn everything about each concept (whole vs. term) and each product so I can best serve my clients and have a lucrative career that allows me to sleep at night. I’ve read that the average person will make additions to their original commitment 5-7 times over their lifetime. From a purely financial standpoint, I would much rather see the first year commissions from all 5-7 purchases, even if it’s term, by best serving my clients needs and situations then to push a whole life policy in order to get more cash. And that’s purely a financial move, not to mention ethical. Every negative thing I’ve read about products, rates of return, and sales tactics make me feel more and more secure about my position with this company and the standards which they teach and promote. Granted, not every agent will follow those and act in the best interest of the client, but that’s really more of a comment on greed and human nature then that of companies or insurance products. If you’re thinking about making a wise decision with your finances (insurance, investments, whatever) then you should also be willing to put time and effort into researching and getting the facts before hand. Not to say that deception is excusable by any means, but I think the responsibility lies in the clients hands, in being knowledgeable and seeking council prior to any major financial decision, just as much as the agent or company. Simply put, term is good for what it does and whole is good for what it does. It’s just a matter of if “what it does” is what you need. My company may be paying 6.5% for a return which isn’t the 10% that people compare it to (btw they never mention what in the world is yielding 10%), but the principle is guaranteed to not go down and the policy and cash value will do (for the most part) what the ledger states in the beginning. We’re all grown ups, do your research and ask a lot of questions to people who are reputable and don’t stand to make a profit off of you.