Losing a loved one is devastating, and there's more to life than cold hard cash. You wouldn't want your loved ones to have to worry about money while they are grieving. That is the whole point of getting life insurance.
By establishing a payment (also known as a death benefit) equal to 10-12 times your annual salary, you can rest assured that your financial obligations will be met in the event of your untimely death. It appears to be quite a lot. Nonetheless, term life insurance policies with so much coverage typically don't cost much. Moreover, you want to guarantee that your family's long-term requirements will be met, not just their present ones.
Retirement Accounts, including 401(k)s, IRAs, and Roth IRAs, Total Household Income ($0) Per Year. Medical bills, loans, credit card balances, mortgage payments, etc., all count as household debt.
The logic for our recommendation of a 15–20 year policy term is also straightforward: If you have young children, they will likely be grown and financially independent by the time the term life policy expires. Only during the interim years, when they are wholly reliant on you, will they require insurance.
Even though it's a downer to think about, life insurance only pays out after you pass away. (It is better known as "death insurance," but who would purchase that?) Term life insurance exists solely to pay out a death benefit to your designated beneficiaries (often your loved ones) if you should pass away within the policy's specified time frame.
As we've already established, it will pay for your loved ones' basic living costs in the event of your untimely demise. And if you acquire a policy with a face value of 10–12 times your annual salary, your family can put that money into solid growth stock mutual funds and use the earnings from those assets to replace your income for the rest of their lives.
Your annual pretax income should be multiplied by at least 10. Put in your expected wage increase over the following 5-10 years if you're in a position where you can reasonably expect one. Alex makes $40,000 annually before taxes. He should, therefore, get a term life insurance policy with a death benefit of at least $400,000.
While the stay-at-home parent in your life may not earn money, they still contribute to the household. Consider Sara. She chooses to raise her children at home and is a stay-at-home parent. So, she does everything from driving the kids to and from their after-school activities in her Uber to cleaning the house. No strings attached! Sara needs to protect her income and family by purchasing a term life insurance policy for $400,000 if something happens to her.
Your income is especially important if you have a family to support. Their children, Alex and Sara, are ages 3 and 6. As a result, they will have to rely on their parents for the next two decades at the very least. Not only do they have to pay for necessities like food and shelter but also for luxuries like extracurricular activities and medical care. If your yearly income is between $60,000 and $80,000, your children will be financially secure until they are old enough to fend for themselves, thanks to your policy's generous coverage.
Some people turn to life insurance to cover final expenses if they don't have enough money saved. Today, the typical funeral costs $7,848.1. The following is an alternative method of funding your funeral: Investing $50 per month in a reputable mutual fund, for example, might provide enough money to meet your final expenses several times over.
The price of life insurance depends on factors like one's age, health, and way of living. Alex is in excellent health and has his sights set on a 20-year life insurance policy with a $400,000 death benefit. Will he pay what, exactly? He pays about $18 per month or less than what he pays for monthly coffee.
Dave recommends term life insurance because it’s affordable. A payout of 10–12 times your annual salary is possible, and the duration can be tailored to account for the period during which your loved ones would be financially dependent on you.
