How Much Life Insurance Coverage Should I Purchase?

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Purchasing life insurance is something many of us try to avoid. Some steer clear of the subject, assuming it’s too expensive to fit into their budget. Others just don’t want to disrupt their day with such morbid thoughts. Particularly when it comes to placing a value on their own life.

While it feels morbid, investing in life insurance has a multitude of advantages. The most important being the peace of mind of knowing your family is protected in the event of your death. But, how can you possibly place value on a human life? The reality is, every life is important and no amount of money can replace a human life. There are, however, a number of tips you can apply when determining the face value of your life insurance policy.

Realizing Your Human Life Value

The primary goal of your insurance policy is to provide for your family when you’re no longer there to do so. There are a number of factors included in the human life value equation, including occupation, age, income, number of children, and employer benefits. Let’s take a closer look at these components.

Income

It’s been a long-standing rule to multiply your income times ten when determining your life value. While this might be a great place to start, your age should be factored into this equation.

For example, a 72 year old will likely need less than a 40 year old. The 72 year old typically has less expenses, is nearing the end of his/her career, and has children grown and out of the household. They could probably get by with 4-10 times their annual income. Whereas the 40 year old has a number of years left in their career, has younger children at home, and still has many years left on their mortgage. When determining policy amount, this individual should consider 14-20 times their annual income.

It’s also important to remember that both spouses add value to the household. Many consumers feel they can get by with skipping an insurance policy for the homemaker. But think about all the your spouse does each day to ensure the house runs smoothly. Who will provide those services when they’re gone? Consider each of these services and how much it would cost to hire someone to perform them on an annual basis. You’d be surprised at how quickly the expenses add up.

The DIME Formula: A More Detailed Approach

The DIME formula prompts you to consider all the details of your financial situation. It stands for debt, income, mortgage and education.

  • Debt and final expenses: Conduct research regarding the current cost of funeral expenses. Add that to your total debt, with the exception of your mortgage.
  • Income: How many years would your family need financial support if you were to die unexpectedly? Multiply your annual income by that number.
  • Mortgage: What is the current balance on your mortgage?
  • Education: How many children do you have? What would be the total cost of a college education for each child?

While the DIME formula is more comprehensive than the first two life value options, it doesn’t take into consideration any savings, assets, or the unpaid contributions of a spouse that stays at home. If you’re looking for a more precise number, consider the following formula.

  1. Annual salary (times the number of years you’ll need to replace) + mortgage balance + other unpaid debt + funeral expenses + college education for children + cost of replacement services for stay-at-home spouse
  2. Total from #1 – savings – existing college fund accounts – additional assets – current life insurance

Determining the amount of life insurance necessary to support your family is a task no one finds pleasant. There’s no way of knowing exactly how much insurance would support your family properly. If you come up with a number and it’s lower than what you expected, go with the larger amount. Term life insurance policies are very affordable; adding a bit more to the policy’s face value will save you peace of mind, while barely making a dent in your budget.

Still not sure how much coverage is enough? Stay tuned – our next ebook will go into more depth regarding the amount and type of coverage that’s best for you and your family.

Young, Single, and Childless? Why You Still Need Life Insurance

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So, you’re officially embarking on the next chapter of your life. You’re fresh out of college, just started a new job, and are on the hunt for your first home. Congratulations, you’ve officially entered adulthood. Your twenties are a special time and you should enjoy every moment to its fullest. But, that doesn’t mean you shouldn’t make some “adult decisions” during this period. And purchasing life insurance should be one of those decisions.

Traditionally, people don’t start thinking about life insurance until they get married or welcome a baby into the world. What could you possibly need life insurance for before that? Who would you be protecting before that? Well, there are still a number of great reasons to consider purchasing life insurance above and beyond what your employer offers. Let’s look at a few reasons why your twenties or early thirties is a smart time to purchase.

Younger = Lower Premiums

The insurance company’s revenue is determined by the amount of premiums collected, minus the death benefits paid out for that specific risk group. Another words, every year that the insureds don’t die, their revenue goes up. The life insurance underwriter’s job is to identify the likelihood of an early payout for each applicant and the premium is adjusted accordingly. The risk of them paying out when you’re young is significantly lower. As a rule, that decreased risk is transferred to you through lower premiums.

Good Health = Lower Premiums

The other primary factor in determining your premium is your health. While it’s possible for any one of us to die at any time, you’re statistically less likely to meet an early death if you’re young and healthy. As each birthday passes, the risk of you developing a health condition rises. Once you reach your 30s, the chance of you developing a chronic condition like heart disease or high cholesterol rises considerably. So, for most consumers, the ideal time to purchase life insurance is in your twenties. Your health, coupled with your age, equates to the best possible premium.

Insurability Later in Life

A permanent life policy is recommended over a term policy, as this is a great opportunity to build a little nest egg through the cash value on your policy. Depending upon your financial situation, however, this might not be an affordable option for you. If you decide a term policy is best for your budget, don’t fret; you’re setting yourself up for a later date.

Most term life insurance policies include a term conversion rider standard on every policy. This rider allows you to convert your term policy into a permanent life policy without submitting to another medical exam. While your converted policy premium will reflect your age and overall health, this rider comes in handy for people who have developed medical conditions since the original policy’s inception. It makes the entire process smoother and more affordable.

While this rider comes standard on most policies, some companies require the benefit to be requested on the application. Be sure to check with your agent to ensure you don’t miss out on this valuable opportunity.

Living Benefits

Most people equate life insurance to death. And rightfully so. That is it’s intended purpose, right? While this is true, many people use their life insurance for living benefits as well.

Your whole life policy has the added benefit of accumulating cash value. This builds slowly at first, as there are policy set-up fees that must be paid down at its initially. But as time goes on, you’ll start to see the cash value really grow. This is your money that can be borrowed against at any time, for any reason. Many insureds use this money to help pay off student loans, offset the costs of their wedding, or even supplement their income when they get to retirement age.

When purchasing your policy, be sure to speak with your life insurance agent about the Acceleration of Death Benefit Rider. Should you become terminally ill, this rider allows you to collect on your death benefit early. This can help ease the pain of paying for medical bills or provide you with the funds to check some things off your bucket list before your death. It’s a living benefit none of us envision ourselves ever needing, but are grateful for if and when the time comes.

Your twenties are a time to celebrate. You’re officially out on your own, enjoying the wonderful gifts that life has to offer. It’s also a time to start considering financial priorities and setting yourself up for long-term success. The best time to purchase life insurance is when you’re young and healthy. If you invest in your future now, it’s one less thing you have to think about later, when you’re celebrating the growth of your family or a new home purchase. So don’t delay; speak with an insurance professional about your options today.

7 Reasons Why Consumers Hesitate to Purchase Life Insurance (and the Reasons Why You Should)

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“I’ll worry about exploring my life insurance options tomorrow.”

How many times have you uttered or heard these words? When you’re busy or your budget is tight, it’s tempting to relegate life insurance to another day’s to-do list. We understand. But life insurance is probably one of the most critical investments you’ll ever make. It ensures your family is protected in the event of your untimely death. It can even afford you financial support, should you find yourself facing a critical illness. So, why do so many still choose to overlook it?

For today’s post, we’re sharing top reasons consumers put off purchasing life insurance and how comparison shopping with us can put your procrastination to rest.

1) I Don't Want to Think About Dying

The only thing certain in life is death. Still, it’s not something any of us care to think about. As adults, we’re confronted with issues we often choose to ignore. This never alleviates the problem, though. The most logical and responsible thing to do is face the issue head-on, make a decision, and shift your focus back to living. It doesn’t have to be a painful process. The Vista Life team can help you understand the coverage you need and comparison shop quickly and confidently.

2) It’s Complicated

We live in a society where virtually everything can be researched and purchased online. While life insurance is no exception, many consumers become intimidated and walk away, when they have to weigh their available options. Life insurance has a unique value that differs from person to person. It’s critical that you discuss your needs with an experienced professional that can offer guidance and support. Purchasing life insurance doesn’t have to be a daunting task, but it is an investment you want to take seriously.

3) Paralyzed by Fear

No one likes making the wrong decision, particularly when it’s costing them money. But not making a choice at all is the worst kind of decision. Your need for life insurance isn’t going to dissipate over time. In fact, it’s likely that it will grow. Doing so now will ensure your premiums are the lowest possible and that your family is protected in the event of your untimely death. And, while it’s not recommended, you can always cancel the policy later if you really feel you made the wrong decision.

4) Don’t Have Time

If you’re anything like me, you often feel there’s not enough time in the day to get everything done. Cross one thing off the to-do list and two more things get added. Purchasing a life policy doesn’t have to be a lengthy process. In fact, you can obtain comparison quotes through Vista Life in less time than it takes to fill up your tank at the gas station.

5) I’m in Great Health, Why Would I Need Life Insurance?

You just had a physical and got a clean bill of health. Congratulations! Unfortunately, there are no guarantees in life and your health is no exception. Remember, insurance protects our family against the unknown. Do you really want to gamble with your family’s future?

6) It’s Too Expensive

One of the top reasons why people fail to purchase a life insurance policy is cost. If budget restrictions are a concern for you, don’t give up hope. There are a multitude of affordable options available. Don’t allow this common myth hold you back from investing in your future.

7) I Have a Pre-Existing Condition, I Know I'll Be Denied

Many consumers work under the assumption that a medical diagnosis immediately makes them uninsurable. While a medical condition typically results in a higher premium, the underwriter considers your ability to control said condition which determines insurability and price. At Vista Life, we’ve made it our mission to find affordable coverage for every insurable risk.

Most people want to enjoy their life, particularly the fun times with friends and family. It is understandable that people shy away from thinking about the end of their lives. No one wants to think about leaving their friends and family before their time. Working with a qualified professional will allow for a seamless and painless life insurance process. Once you’ve made your final decision, you can rest easier at night and get back to living life to it’s fullest. At the end of the day, that’s all any of us really want.