I have a confession to make: I have probably searched for life insurance quotes at least 5 or 6 times in my life, but I’ve never pulled the trigger.
The reason I have never decided to purchase a policy is because I’m having a really hard time determining how much insurance I actually need. There is no right answer, but there are definitely things to consider.
First of all, you obviously have to consider the price. It’s good to get quotes from a lot of different companies and to make sure you get the best price. I’ve looked at places like State Farm, GEICO, Liberty Mutual and others. If you live in Australia you might look at Lifebroker or other Australian companies.
As I am thinking about life insurance to protect my fiancee financially if I were to pass away, here are a few considerations I’ve been throwing around.
Does Your Employer Offer Life Insurance?
One of the benefits at my job is a life insurance policy equal to one year of my current salary. Let’s pretend I make $60,000 a year. In that case, if I pass away my fiancee would get a $60,000 check from my work.
While I would eventually like to raise this to a higher number, it is nice to have this fallback option that doesn’t cost me a dime. As long as I stay with this company, I have a fairly decent life insurance policy already.
It’s important to remember that this is only available to me as long as I remain employed with this company, so it’s not something I can necessarily count on in the future. They could fire me at any time, or I could quit if I find a new job.
The main benefit of this policy is that it allows me to wait until I finish my research and settle on a policy, while still having a little bit of insurance to fall back on.
What Will Your Family Look Like in a Few Years?
At first I thought, I can just get a small policy that my fiancee could use to pay off our house and all her student loans. That would be more than enough to give her a comfortable life. Then I remembered that it won’t just be me and her for long.
When you are looking at a term life insurance policy for 10, 20, or 30 years, it’s important to buy a policy that will support any family you may have over that time period. If you are going to have or adopt children, the amount of insurance you purchase will need to go up, especially if you are planning to pay for your kids’ college.
What Do You Want for Your Surviving Family?
Finally you have to ask yourself the most important question: what do you want for your family if you pass away. I’ve thought about this quite a bit and this is what I’m starting to settle on:
- Enough money to pay off all debts, including our mortgage. This is about $200,000 at the moment, but this isn’t our forever home. Our next home will probably more expensive, so I should probably look at about $300,000.
- $100,000 for my fiancee as a cushion to help her transition to life without me. She could use this money to go back to school if she wanted, or she could just use it to supplement the income she gets from her job. Her expenses will be lower because the mortgage and all debts would be paid off, so this should last a long time. It could also help pay for a nanny or daycare so she can work without worrying about caring for our kids (that we hope to have one day).
- Another $100,000 to put in a trust for my kids. I’d probably have to set up some rules that restrict them from accessing the money until they reach a certain age and/or meet certain conditions. I haven’t put much thought into this yet, but I could basically just trust my fiancee to decide when the kids deserve to withdraw from the account.
Based on this assessment, it looks like I’d need a $500,000 policy. I’d probably look at a 20 or 30 year term, because in the next 20 or 30 years I expect to have a net worth over $500,000 and at that point I would have enough money saved up where I wouldn’t need an insurance payment to provide for my family.
Readers: Do you have life insurance? How did you determine how much you needed?