I get the question all the time. Sometimes it's customers, sometimes it's on a plane after I say what I do for a living.
I has recently been interviewed on this topic by the publisher for Kim Lankford Kiplinger magazine. Kiplinger is pretty much the first and last word in personal finance, and Kim always done a great job of capturing the importance of life insurance and transmit my passion for the product .
So, what is life insurance and who needs it? Life insurance is a contract with a major financial institution; a contract that promises to pay a bunch of money to your loved ones when you die. If you have someone in the world that you care, anyone who depends on you financially (like your family!), You have to have. Why? Because there is no other product that does what the insurance providing dollars for pennies-exactly when it is most needed.
Understand that life insurance can not replace YOU (a father, husband, wife, or mother), but it can replace your economic value to your family. It ensures the financial future of your family, protects against the unexpected, and, in my opinion, humanity produces the largest ever invented (with the possible exception of the wheel).
But how much should you buy?
This is the question that everyone wants to know the answer. Well, there are no quick answer, as you know, if you read this blog, I'm not a big fan of empirical rules. But for the sake of this post, here are some things you might consider in determining how much life insurance to buy:
debt -If you have taken a loan or mortgage the face value of your policy should be large enough to cover these debts (and have some left over for your dependents)
spending -Make sure your beneficiary receives enough for final expenses, death taxes, funeral expenses, bills, and other expenses from day to day
future -You can not anticipate exactly what your family will need to the future, but make sure that your death benefit is sufficient to cover the tuition fees of your children, weddings and monthly bills
income replacement -If your family depends on you to be the bread winner, when you die, life insurance to replace your income; How many years of your income you need to replace is yours, but the calculation is very easy
Over the years, I have heard several "ground rules" (which I hate), but they provide a place to start. In some cases, 10x income is appropriate, but in others it is not. For example, a man in his 30s with two children probably need more income 10x (20x or 30x is more like it), while highly paid positions in his 60 years with children already out of University may need less income 10x.
There are many life insurance needs calculators on the web, including on our website. Most people are shocked by the number needed to replace their economic value. The good news is they are just as shocked by how inexpensive it is. According to LIMRA, industry research arm, young people overestimate the cost of life insurance by a factor of 7, while the oldest overestimate what life insurance cost by a factor of 3!
How cheap is it?
As I mentioned in my interview Kiplinger, a 30 year old man wanting to $ 1 million in coverage (20 years) would pay $ 421 per year. A woman of the same age would still pay only $ 354 less per year.
A political one million dollars, with a 20-year rate guarantee, for a little over a dollar a day? Really? Really!
Whoever you as financially? What's your excuse now?!?!
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