How Much Life Insurance Do I Need?

What Is Life Insurance?

Life insurance protects the people you leave behind. It’s an insurance policy that pays a certain amount of money for your loved ones’ anticipated expenses after you pass away.

How much life insurance you need depends on what you hope to cover for your loved ones after you’re gone. Some people want to provide for every possible expense. Others simply want to take care of the basics and provide temporary relief until their family is able to move on. 

What Does My Life Insurance Cover?

Your policy can cover a number of financial needs, including:

  • Funeral expenses
  • Income replacement
  • Mortgage payments
  • College tuition for children
  • Payment for anticipated expenses/debts

Is There a Guaranteed Sum?

With term life insurance, you can select a fixed premium and a fixed term. This guarantees that you will pay the same amount each month—a fixed premium—for a set number of years—a fixed term. If you pass during the term and you’ve been paying your premiums, your loved ones will receive the full amount of your policy.

For example, let’s say you opt for a $500,000, 20-year life insurance policy. You pay your premium every month, and 10 years later, you pass away. Your family would receive your $500,000 policy because you paid your fixed premiums and you passed during your fixed term.

Is There Guaranteed Income Replacement?

That depends on your policy. It’s a good idea to review your policy every two or three years, or at least after major life changes. 

For example, the policy you buy as a young, healthy, independent 25-year-old may not offer enough support when you’re a 45-year-old married homeowner with three kids.

If you want to ensure that your spouse has a certain amount of income available after you pass, speak with our agents, and we can explore your policy options.

Is Life Insurance Necessary?

At some point, everyone needs life insurance.

Everyone needs to make sure they leave enough behind for their loved ones to at least take care of their funeral expenses when they pass. The National Funeral Directors Association (NFDA) estimated in 2019 that the median cost for a funeral with a viewing, ceremony, and burial in Michigan cost $7,855. 

What If You’re Single?

A common misconception is that only people who are married or have kids need life insurance. But nearly every person, whether they’re married or single, leaves two things behind when they pass: family and expenses.

Let’s say you’re a single person in your mid-forties. If tragedy strikes, your parents or siblings may have to assume the financial responsibility for your funeral expenses. They may also have to take on other debts, like a car or house payment. 

Do Young Adults Need a Policy?

Another common misconception is that only the elderly or ill need life insurance. In fact, getting life insurance when you’re young and healthy is one of the smartest financial decisions you can make as a young adult.

It’s incredibly inexpensive for most young adults to get a life insurance policy. With term life insurance, you can lock in a fixed premium for a fixed term that’s typically very low because of your youth and health. For example, in many cases, it’s easy to lock in a $100,000 policy for 20 or even 30 years for as little as $10–$15 a month.

It’s much less expensive to get life insurance at 25 instead of 55. Remember, even if you’re a young twenty-something living with roommates with few assets to your name, you still may leave a large bill for your parents or siblings if you pass unexpectedly. Lock in a less expensive price as a young adult, and enjoy paying low premiums for the next 10–30 years.

What About Adults with Debt?

It can be hard to justify yet another monthly bill if you’re already dealing with lots of debt. Whether you’re paying off your credit cards, sinking under student loans, or trying to make your mortgage payment, you may feel like a life insurance premium is one bill too many.

However, adequate life insurance is perhaps even more important if you’re juggling multiple debts. Not all debts die with you, and you don’t want to leave your loved ones with extra bills that outlast any savings you may have left for them.

Our life insurance agents can help you take your debt into account and develop a policy that ensures you leave your loved ones in the best situation possible. As you pay off your debts, you can adjust your policy accordingly.

Do Parents Need Life Insurance?

Anyone with dependents needs life insurance. Whether you’re a single parent or married, you’ll need to provide for your children in the event that you pass unexpectedly.

Some parents worry they’re tempting fate if they buy life insurance, but that’s not the case. In reality, you’re making a responsible decision to protect your children in case the unthinkable happens. 

Remember, taking an umbrella with you on your way to work doesn’t make it rain. A lot of life is outside of our control, including uncomfortable realities like death. The best thing we can do is make sure our family is taken care of in any and all scenarios.

What If You’re Wealthy?

If you are in the top one-percent of earners, life insurance may not be necessary. However, some incredibly wealthy individuals still choose to take out cash-value policies as a way of accruing more wealth. If you’re unsure whether your wealth should play a factor in your life insurance decisions, speak with our agents.


What to Consider When Getting Life Insurance

If you’re shopping for life insurance, it may be difficult to figure out which policy best meets your needs. In general, it’s a good idea to keep four things in mind:

  1. Who you leave behind: For many people, this includes their spouse or their children. However, don’t forget to think outside of the nuclear family. Your parents or siblings may have to take on your expenses if you’re single.
  2. What you leave behind: After you pass, your family will likely have to deal with more than just your funeral expenses. Consider your debts, your family’s financial needs (college tuition, income replacement, etc.), and any expenses associated with closing your estate.
  3. Carrier ratings: Choosing the right insurance carrier is almost as important as choosing the right insurance policy. At Autumn Insurance, we only work with companies with an A rating or better for life insurance. The last thing you want to do is to choose a company that goes under in a few years, making your policy worthless.
  4. Life changes: Many policies last ten, twenty, or even thirty years, but it’s important to review them more than once a decade. Your life can change dramatically in a short amount of time—at 25, you may be single and living with roommates, but at 28, you may be a married homeowner with your first child on the way. It’s okay to select the policy that makes the most sense for your life right now, but don’t forget to review your policy every couple of years to make changes as needed.

3 Types of Life Insurance

1. Term Life Insurance

Term life insurance is the most common type of life insurance people buy. It is especially recommended for young people because it is so affordable.

Fixed Term, Fixed Premium

Think of term life insurance like renting an apartment. 

When you rent, you sign a lease for a certain number of months, and you pay a certain amount of money each month so you can stay in your apartment.

With a fixed term, fixed premium life insurance policy, you pay a certain premium each month for a certain number of years so you can keep your policy.

When you rent an apartment, your monthly payments don’t go toward one day owning the building; they just allow you to stay in your apartment. At any time, you can decide to move somewhere else. 

With term life insurance, your premiums aren’t going toward a policy that you can “cash out” at any time. The only time your life insurance policy pays is when you pass away. However, you can decide to walk away from your policy at any time with no repercussions.

Benefits of Term Life Insurance

There are many great benefits when you choose term life insurance, such as:

  • Lower premiums: Term life insurance is by far the least expensive life insurance policy you can choose, but it still offers adequate coverage if you pass unexpectedly.
  • Guaranteed value: As long as your policy is active and you pay your premiums, your loved ones will receive the face value of your policy if you pass.

When Is Term Life Insurance Not Recommended?

Although term life insurance is a great option for most people, it may not be the right choice in all circumstances. If you suffer from a specific health issue that will get worse over time, term life insurance may be more expensive than other insurance options.

2. Cash-value Life Insurance

Cash-value life insurance policies include whole life and universal life policies. They’re a permanent form of life insurance that you can cash out at any time before you pass.

With whole life insurance, you’ll choose fixed death benefits and pay a fixed premium. Meanwhile, part of your premium each month will go into a savings or investment account to accrue value over time. 

Universal life insurance offers more flexibility. Part of your premium will still be saved or invested, but you can change your premium amount and/or death benefits to better meet your current needs.

Permanent Life Insurance

If term life insurance is like renting an apartment, think of cash-value life insurance like buying a home. 

Even if you pay a mortgage, you own your home and can sell it for its cash value at any time. With permanent life insurance, you can walk away with whatever cash value your policy has accrued over time. 

Benefits of Cash-value Life Insurance

Cash-value life insurance is a good option for people who can afford higher premiums. It’s also recommended if your long-term health issues make it difficult to get coverage in the future. You can even take out a cash-value life insurance policy for your child so they can choose what to do with it when they’re older.

When Is Cash-value Life Insurance Not Recommended?

It can cost two or three times as much for a cash-value life insurance policy versus a term life insurance policy for the same value. For example, a $100,000 term policy may cost $10 a month, but it could cost $30 a month for a $100,000 cash-value policy.

Keep in mind that if you decide to cash out your cash-value policy early, you won’t get the full value of the policy. If you have a $100,000 cash-value policy, for example, and you decide to walk away and cash out what money you’ve accrued, you won’t simply get a $100,000 check. In fact, you may have to pay a surrender charge to cash it out early.

3. Convertible Life Insurance

Convertible life insurance policies start out as term policies and have the option to convert into cash-value policies later. Although these policies may still be available with some carriers, they are no longer popular, mostly because they are quite expensive. 

How Much Life Insurance Do I Need?

There is no easy answer for how much life insurance you need. It depends entirely on the specific details of your life: your assets, your debts, your dependents, your income, your relationship with your family, and more. 

Determine The Right Amount

Don’t forget to factor in your desires for your passing when trying to determine how much life insurance you need.

You can insure everything you own and everything you do, but you run the risk of over-insuring and ending up with a monthly premium that’s too expensive. You can get enough just to cover your funeral expenses, but then you may leave your family in the lurch if your lifestyle changes and you end up with more debts than you anticipated.

Our independent agents can help you translate your desired outcomes into specific life insurance policy.

Beware Simple Life Insurance Calculators

Other providers may offer a life insurance calculator online or promise a simple method to calculate your ideal policy on your own: 10 times your income, or 10 times your income plus college tuition, or the DIME (debt, income, mortgage, education) formula. These are too simple to truly determine how much life insurance you need. They may give you a ballpark figure, but they won’t tell you what’s right for you and your family.

In fact, these simple calculators may sell you short on the type of policy you can afford. Many people can afford policies that are 15–18 times their income. You may think you need to start at $100,000 when in reality, you need to start at $500,000 just to cover all of your current assets and liabilities. Our independent agents can help you determine how much is reasonable for your specific circumstances.

Should I Increase My Current Policy?

If your assets are growing or you have more dependents, then your life insurance policy should increase. We recommend reviewing your policy every two to three years to account for changes in your health, your family, and your finances.

There is no penalty for ending or changing a term life insurance policy. Keep in mind, though, that if you want to change policies entirely, make sure you don’t end your old policy before your new one begins. You want to ensure total coverage and avoid any gaps.

How Much Is a Life Insurance Policy?

The monthly cost of your policy is known as your premium. Remember, there is no typical life insurance cost; your premium depends on a number of factors, including your:

  • Age
  • Sex
  • Height
  • Weight
  • Health history
  • Current medications
  • Parents’ health history
  • Smoking history

Term life insurance generally offers the least expensive monthly premium. You’ll also have a smaller premium if you’re young and healthy.

3 Ways to Save Money on Life Insurance Costs

  • Buy young: With term life insurance, you can lock in a fixed premium for a fixed term. Since your premium is typically less expensive the younger and healthier you are, you can save a lot of money by signing up for life insurance in your twenties instead of your fifties.
  • Make healthy choices: The healthier you are, the lower your premium will be. Avoid damaging habits like smoking, make sure to exercise, and strive for a balanced diet.
  • Choose an independent agent: Our independent agents at Autumn Insurance can review life insurance policies from multiple carriers. If you work with just one insurance company, you’re limited to what they offer, but if you work with an independent agent, you can choose from a variety of policies from multiple carriers. This can help you get the coverage that’s best for you and your family at the best price.


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