Share:

Learn About Life Insurance

Your family depends on the paychecks the breadwinners bring home.   So what would happen should a breadwinner die?

Print
Share:

Nuts and Bolts

Life Insurance Benefits & Costs

Benefits. Life insurance pays the “face value” of the policy should a breadwinner die. And the payment is free of taxes.

Costs. Life insurance is bought by paying monthly, quarterly, or annual premiums, with the premiums based on your risk of dying and the size of the “face value” amount.

  • Premiums are lower if you are young and healthy, because your risk of dying is lower.
  • Premiums rise with the “face value” amount, but it doesn’t cost twice as much for twice the “face value” amount.

Also:

  • To avoid potential complications should you (or your spouse die), make sure you have a will.
  • As more people get disabled than die prematurely, also Learn About Disability Insurance.

The Risk is Real

So Make Sure You Have a Plan

You’re not invincible. The typical American man has a one in six chance of dying during his prime working ages of 25 and 65. Women have better odds of surviving, but one out of five couples will lose at least one member by the age of 70.

The point is not to dwell on these numbers, but to make sure that your family is financially secure regardless of how fate plays out.

Odds of dying before 65 (retirement):

at AgeMaleFemale
301 in 61 in 9
501 in 71 in 12

A Rule of Thumb

Which You Can Personalize

A basic Rule of Thumb says 40 year-old couples need a policy on the higher earner covering 6x family income and a policy on the lower earner covering 3x family income.  You’ll need less if older, more if younger, and much more if you’re the sole provider.

Note: If you’re a single parent, your life insurance needs are too complicated for our simple program.

Please fill all required fields
    header-small A Quick Estimate
    header-column  Age Take-Home Pay Other Income 
    input You  
    input Your Spouse  
    gap     
    text 
    text
    text 
    text 
    gap     
    header-small A Quick Estimate: Insurance Needed to Cover the Income Shortfall
    header-column  Monthly Shortfall Months To Retirement Insurance from Employer Insurance Needed*
    input results-small If you die 
    input results-small If your spouse dies
    textFor a more personalized estimate, check out our life insurance calculator. 
          
    Powered By SpreadsheetConverter (6.0.4287.4287)

    In Retirement

    Would the survivor have enough?

    • From Social Security.  The survivor in a married couple generally get the higher of the two spouses’ benefits – but that’s one benefit, not two, and almost always less than 70% of what you get as a couple.
    • From Employer Pensions.  If the surviving spouse earned the pension, the pension continues.  If the spouse who died earned the pension, the survivor generally gets only half.  In either case, pension benefits buy less over time if not increased in line with inflation.
    • From Savings.  Savings often decline to pay “last illness” expenses.  But the savings that remain need to support one person, not two. So the more you have in savings, the more protected the surviving spouse.

    Use Figure Out a Retirement Plan (for those over 50) see how your survivor might fare in retirement.

    Types of Policies

    Coverage for Life, or for a Set Period?

    Term Life insurance, the most common type of life insurance, covers you for a specific period, like a one, five, or 10 year period.  You typically have the option to renew for additional periods for a higher premium – as your risk of dying rises with age.

    Whole Life policies cover you over your lifetime for fixed premium payments. Your risk of dying rises as you age.  So the policy builds up cash value when you’re young and your risk of dying is low.  That cash value is then used to supplement the fixed premium as you age, and your risk of dying rises.

    • Whole life policies have “investment” features: the cash value earns investment income, which is exempt from taxes.  You can also borrow against the cash value or take withdrawals.  But be careful. Borrowing or withdrawing too much could reduce or eliminate the life insurance benefit and result in a tax bill from the IRS.

    If you simply want to protect your family in case of an untimely death, experts generally recommend a Term Life policy that’s easy to understand. If you want to use a Whole Life policy to leave a bequest or to bolster your retirement savings, see a financial planner – these products can be hard to understand.

    Print