How much is enough?
By: Jonathan M. Bernstein GBDS, VBS
I get it, life insurance coverage isn’t the most popular discussion to have especially, given the implications of actually utilizing the policy. However, it is an essential discussion to have to ensure that the needs of our families are met in the unfortunate event that we pass.
The amount of coverage one should have is based on the specific individual. Below are some basic questions that should be considered when trying to determine a coverage amount:
- What is your gross annual income today?
- At what age do you plan on retiring?
- What is your current debt?
- If you have children, how much will you need for their college expenses?
- What is the desired amount for your final expenses?
- How much life insurance, if any, do you currently have?
- Do you have any liquid assets?
Once the above questions have been considered, it’s good to dig a little deeper and consider the following:
- How long will your beneficiaries need income?
- What percentage of your income do you want to replace?
- Do you receive income increases each year? What percent?
Based on your answers and needs, the above will give you an estimate of how much you should have to provide for your family after death.
In terms of actually purchasing the insurance policy, most of us are not buying individual policies. We are buying insurance at our place of employment. If you have a current medical condition or a history of medical issues, the workplace may be the only place you are able to get coverage. If you are healthy, there are alternatives and you can get coverage at your workplace or an individual policy.
Most voluntary group polices will provide a max benefit of $500,000 depending on the size of your company. These group policies will only have a guaranteed issue of between $50,000 and $100,000. If you are healthy, by all means go for the amount indicated by your calculation. If you have a history of illness then take at least the guaranteed issue. There are no medical questions needed when you take the guaranteed issue amount.
Voluntary Term Life policies* are very inexpensive compared to individual policies. This disparity in cost is due to the spread of risk for the insurance carrier. The group policy has a wider spread of risk due to many employees taking the coverage. Whereas, individual policy risk is based on one person and their health history.
My recommendation is to answer the above questions honestly, check to see if you company offers a company plan, ask about a voluntary life option, take at least the guaranteed issue on any group policies and apply for the max, and then consider filling the needs gap with an individual policy.
I understand that navigating the insurance world can be complex, please reach out to me if you would like to go through this process and discuss how much coverage is enough.
Jonathan M. Bernstein GBDS, VBS
Senior Account Manager
412-237-2105 | TF: 800-892-1015 | F: 412-231-1633
*Most group policies are Term Life. The policy does not build cash value and will term when the premium payments stop. Insurance carriers are now starting to offer group policies that build cash value. These polices include whole life, Universal Life, and Variable Life.