Employer provided benefits, though well-intentioned, can nonetheless be a minefield for misinterpretation. Take life insurance, for example. It's a popular employer-provided perk that is lulling workers into a false sense of security. A new survey from LIMRA, the research engine for the life insurance industry, says 108 million Americans have life insurance through a group plan while 102 million have coverage through an individual plan they purchased.
In most instances, workers merely accept the free life insurance benefit without thinking it through. Nothing wrong with free, but free isn't necessarily enough.
Anita Potter, a workplace benefits specialist at LIMRA, says smaller firms tend to offer a flat dollar amount, maybe $25,000 to $50,000. At firms with at least 100 employees the norm is typically a multiple of salary; one times salary is common, though sometimes generous employers offer up a two times or three times free life insurance benefit.
If you are just out of college and don't have debts or dependents that might be enough but most times it's just not enough. But if you've got other people dependent on your income, such as a spouse, parents or siblings, you likely will want a policy that also provides supplemental income.
The average mortgage balance is around $110,000. Private student loans which aren't forgiven when the borrower dies, can be a burden your heirs will have to deal with. And if you have children he cost of getting them through their schooling is going to be another multiple of your salary.
That's why a basic starting point for protecting a household is typically in the vicinity of 10 times salary. Even if your employer offers the ability to purchase additional coverage through the group plan (and only a minority of employees choose that) that often has a limit of a few times your salary.
Chances are you need to venture into the individual market and buy a term life insurance policy. If you're in good health and on the younger end of the age curve, the individual market will likely be less expensive than the premium for buying more coverage through the group plan at work.
A term policy pays out a death benefit to your beneficiaries if you die during the policy term, which can be 10, 20 or 30 years. That's likely all you need, given that your big ticket expenses have a finite shelf life.
For example, the mortgage will be paid off within 30 years, and the kids will be young, independent adults (hopefully in less than 30 years). And if you outlive your policy, chances are in the intervening 10, 20 or 30 years you've managed to pay off the mortgage and build up assets, such as retirement accounts and other savings.
Term life insurance is much less expensive than that other breed of coverage: permanent life insurance, which comes in a variety of flavors such as whole life and universal life. Most people are surprised at how inexpensive term life insurance is.
Get your free quote HERE.
How much is enough? Its a tough question to answer as sadly you won’t be here to collect it.
The question really should be how much life insurance do your dependents need? Its not an easy question to answer and to can be harder to figure out. How much life insurance do you need can sometimes put people off when they look at the numbers and decide its just too much. Today we will try to break it down in to easy segments and then see where we go from there.
End of Life Expenses
Lets get the hardest one out of there way first. How much will the funeral cost? Burial and other funeral expenses can be costly. On average funerals run between $7,000 – $10,000 depending of course...cremations would be less. Then you need to also factor in Federal and State taxes plus any probate/legal costs.
Mortgage / Debts
The largest debt you are likely to have is an outstanding mortgage. Unless there is any current mortgage protection of life insurance in force, this debt will continue and will require paying. Life Insurance allows your family to stay in their home and maintain their lifestyle. Any other outstanding loans (car loans or bank loans etc) should also be included in the amount to calculate.
Most people would like to have peace of mind knowing their children's education would be funded if they were no longer here. Life insurance can ensure that there are enough funds to make that happen.
Replace lost income
If the main wage earner dies, that income should be replaced. Remember this is the net after taxes and any other regular deductions have been taken out. Start with your current annual before-tax salary. The other number you'll need is the time, in years, until you reach retirement age. Given these two numbers, you can figure out how much your family will need to replace this lost income over this length of time should something happen to you.
Investigate the cost of Life Insurance
Once you have an idea of the total required get some quotes. During this process compare the costs and coverage. You might be pleasantly surprised at how affordable term life insurance really is.
As a married couple you share a life together, but you also share each other’s financial obligations. What if one of you died tomorrow? Would the survivor have enough money to pay for your final expenses, eliminate debts such as credit card balances and car loans, and buy some time to be able to adjust to a new way of life? Life insurance can help ensure that these financial goals are met if tragedy strikes.
It's a misconception that the only person who needs life insurance is the primary breadwinner of the household because they are the ones who bring home a regular salary. It’s not just the breadwinner who needs life insurance - the need to purchase life insurance for the stay-at-home parent should not be underestimated.
Unfortunately too many families fail to plan for this unexpected hardship as it's not something most people like to think about - the idea of leaving behind your family is unfathomable. However, preparing for the unexpected doesn’t make it happen any sooner and it is just a prudent and wise move as the death of a stay-at-home parent can leave a family extremely vulnerable and can place a huge financial burden on the family.
A stay-at-home parent provides valuable services that the surviving parent would have to pay to replace. The cost of child care in America is staggering. The average cost of full-time daycare in the United States is over $11,000 per year or $900 a month.
Couples who consider all the ramifications will quickly understand why it's so important that a life insurance policy covers both parents. Should something happen to the stay-at-home parent, the surviving spouse soon would find himself or herself as the primary income earner and the primary child care provider, while also coping with the loss. A life insurance payout could also enable the surviving breadwinner to take a few years off work while the family regains footing.
Term life insurance protection is surprisingly affordable and simple to purchase. Get a free instant quote now or call us to discuss 484-919-5423.
The short answer to that is most likely not. While taking advantage of life insurance coverage through your employer is a smart step toward protecting your family if you’re no longer around, it may not be all the coverage you need.
First of all confirm that you have coverage. Then find out how much coverage you have. It’s usually tied to your annual income. For example, if you make $50,000 a year and have a policy worth 2 times your income, your coverage amount is $100,000.
Third decide how much coverage makes sense for you and your family. One basic rule of thumb is that the death benefit on your policy should equal seven to 10 times the amount of your annual salary. Usually employer coverage is not enough so it makes sense to purchase an individual policy to fill the gap.
Two really good reasons you should supplement with individual life insurance coverage: