Life Insurance Coverage is Necessary

If your employer automatically provides you with life insurance coverage, I want you to listen up. 

The life insurance you get at work as a no-cost benefit is not going to protect your loved ones. 

Workplace life insurance pays out a very small death benefit that is typically equal to one or maybe two years of your salary. 

That is not nearly enough. To fully protect your loved ones and make sure they never have financial hardship, my advice is to consider a term life insurance policy that is at least 20 times (25 times is even better) the annual income that you need to be replaced. 

Term Insurance is Very Affordable 

I bet my 20x to 25x advice just made you gulp. That sounds like it would be unaffordable. 

Not if you listen to me.  

Most families only need term life insurance, which is not very costly. For example, a 40-year old man in good health (not fantastic health, just good health, and a non-smoker) might pay $120 a month for a 20-year term life policy that will pay a $1.25 million death benefit if he dies in that 20-year stretch. That’s less than $30 a week for a whole lot of peace of mind for you and your loved ones.  

Okay, now that you know it’s affordable, let’s review my key life insurance rules: 

• Protect anyone dependent on your income. If you are single with no children and no one relies on your income, you don’t need life insurance. But if anyone—spouse, child, partner, parent, sibling—relies on your income, you can protect them with life insurance. 
• Stick with term life insurance. Unless you have someone in your family with special needs, there is typically no need to buy whole life, or universal life, which are referred to as “permanent” policies and cost a lot more. 
• Decide how long you need the insurance to be in effect. A term insurance policy is only in force for a set number of years. You can purchase a 5-year term policy, a 10-year term policy, a 20-year policy, or even longer. If you have young children today, you might want a 20- or 25-year policy, to make sure there are funds to support them through college. Or if you want to make sure no one would need to sell the home you live in, you could get a term policy for at least as many years that remain on your mortgage. 
• Multiply the annual income you want to insure by 20 or 25. The reason I want you to get such a large policy is so that if anything happens and your loved ones receive the death benefit, they can invest it conservatively in bonds to generate most of the income they need.  
• Choose an annual renewable level term policy. This means that your annual premium will never change for every year the policy is “in force.” 

You can get a quick sense of your potential premium costs at the term4sale.com website. Sites such as Selectquote.com and Policygenius.com sell life insurance. Yep, you can buy a policy right from your computer. Even if you need a medical exam, most insurers will send somebody to your home to check your vital signs and maybe draw blood for basic testing.