Life insurance is something that is vital for every adult, and some children. Life insurance provides a death benefit when one is needed most, when someone has died. There are multiple types of life insurance including term, universal life and whole life. Within those broad categories there are certain subsets like annual renewable term insurance, variable universal life insurance, indexed universal life insurance, blended whole life insurance etc. I try to help people understand how much and what kind they might need to research.
I believe that people often forget the real reason for most life insurance policies which is to provide for your family if you were to prematurely pass away. With that being said, the next question is “how much” do you want to provide?
I was talking to The Wife recently about my previous upgrade and update of of life insurance and she thought I was overinsured! I couldn’t believe it, because the insurance is for her and my child(ren).
Regardless of the amount of insurance I purchase my clear goal is not to die early.
What Does My Current Life Insurance Provide if I Die
I currently own:
- $1,000,000 cheapest 20 year term I could buy
- $1,000,000 expensive 20 year term from a mutual company that I plan on converting to whole life insurance over the next 10 or so years
- $100,000 whole life insurance
- $50,000 a 10 year paid up whole life insurance. This means that if I pay the premium regardless of what happens my heirs will receive at least (probably more) $50,000 when I die
That leaves us with a death benefit of $2,150,000. If The Wife decided to stay in our home, she’d pay off that mortgage and be left with around $1,765,000. If she were able to get 4% net from the remaining amount that would leave her with an income of $5,800/month or so after taxes (with the principal in tact). Without a mortgage I think nearly $6K of monthly income would be sufficient…but over-insured? No Way. Actually I may argue I am under insured.
Remember How You Want Your Survivors to Live
I will probably pick up more insurance one day when we have another child or life, in general, changes. Much like my reasoning to buy life insurance on my child, I do not want “need” to determine when or even if The Wife ever has to work.