So you’re thinking about getting some life insurance to take care of your family in case something happens to you. Hey, this is a good idea! Give yourself a hand for doing some responsible adulting here.
Sure, it’s no fun to think about dying, but that’s kind of the whole point of life insurance in the first place. Ultimately, it’s about protecting the people you love.
What now, though? How much life insurance should you buy? And how can you make sure to get a good deal?
You’ve got questions. We’ve got answers.
How to Get Cheap Term Life Insurance
If you’re like most people, you probably want what’s called “term life insurance.” (There are other kinds of life insurance, but they can get really, really expensive.)
Simply put, term life insurance pays a lump sum benefit to your loved ones if you die during a specified “term.” When you buy the policy, you choose the term — usually five, 10, 20 or 30 years.
The younger you are, the cheaper a life insurance policy is. Once you purchase a policy, the premiums will stay exactly the same throughout the term of that policy.
In other words: You’ll never get a better deal on life insurance than you will right now, while you still have your health. By getting in early, you’ll be protecting your loved ones at the best price possible.
Also, keep in mind that term life insurance is probably cheaper than you might think. For example, rates start at just $8 a month at an online insurance company called Bestow.
We like Bestow because it’s fast and easy and affordable, and the whole thing is done entirely online. If you’re under the age of 54, you can get a free quote without a medical exam — or even getting up from your couch!
With Bestow, you can get coverage that would pay your loved ones anywhere from $50,000 to $1 million if you died.
Now, a million-dollar policy sounds nice, but that can get costly too. The question is, how much insurance do you really need?
How to Decide How Much Life Insurance You Need
At first blush, that question might seem complicated and intimidating. But it doesn’t have to be.
For starters, let’s think about what life insurance is for. The cash benefit that comes from a life insurance policy is intended to help replace your income or satisfy your debts if you die.
“It can replace the income you would have earned if you had lived,” said Steven Weisbart, senior vice president and chief economist of the Insurance Information Institute. “I think it’s grossly neglectful if you don’t think about what [your survivors’] financial situation is going to be if you happen to die. Why would you subject people you care about to that hardship if it is easily fixable?”
Debts factor into it, too. For example, if you and your spouse own a house and have a mortgage based on two incomes, the loss of one income due to death would cause a major financial hardship. So your life insurance policy payout could pay for the mortgage. The payout could also pay for funeral expenses, credit card debt, child care and other expenses.
In summary, here are the three biggest factors to keep in mind:
1. Your Income
Look at what you make annually and how long you plan to continue working. If you make $50,000 a year and plan to work for 10 years, that’s $500,000.
2. Your Children
Consider the ages of your children. If they’ll be on their own soon, they’ll no longer need financial support from you.
Think about college tuition for older children, and the cost of child care for young children.
3. Your Mortgage
Figure out the terms of your mortgage. If your home will be paid off in a few years, you might not need as much life insurance coverage. If you have 20 years left on your mortgage, you’ll need more coverage.
Think Big Picture
Wiesbart says most people don’t buy enough life insurance, often because they think $100,000 sounds like a lot of money, even though it may only replace a year or two of income.
“What you really want to do is think of how long you’ll be earning income,” Weisbart said. “What will you lose if you die today? And that should be the amount of insurance you buy. It wouldn’t be surprising if someone even a modest income would buy a policy for half a million dollars, because that’s just 10 years of $50,000 a year.”
And don’t be scared away by the idea of a half-million-dollar policy. People tend to overestimate the cost of life insurance. For instance, nearly half of millennials think life insurance costs about five times what it actually does, according to a 2018 study by the life insurance industry group LIMRA.
That’s another reason why it’s worth checking out your life insurance options with an online company like Bestow.
The bottom line is, life insurance is meant to keep your family from worrying about money during a difficult time, and that’s what you’re doing this for. You’re doing it for them.
Mike Brassfield ([email protected]) is a senior writer at Codetic.