You may have seen TV spots or radio commercials saying that you can get an amazing amount of life insurance–like $100,000–for maybe just $30 a month if you’re in your thirties and in good health.
If so, this may have caused you to ask yourself, “do I need life insurance? And if so, how much do I need?”
No easy answers
Unfortunately, there is no easy answer to either of these questions.
In the case of “do I need life insurance?” the answer lies mostly in your personal situation. If you are single with no dependents, the answer is probably “no,” you don’t need life insurance. After all, the purpose of life insurance is to take care of the people left behind when you die who are dependent on you. If you’re single with no dependents, there’s nobody that will need to be taken care of when you’re gone. On the other hand, if you have a wife and a couple of small children, you probably do need life insurance.
How much do you really need?
How much insurance should you buy? Again, a wife and a couple of kids you want to take care of, you should probably load up on as much insurance as you can handle. In this case, your best bet would probably be term life insurance. While it never builds any cash value it does provide the maximum amount of insurance for the minimum monthly payment. In fact, level term life insurance is sort of like renting coverage, as you never really ‘own’ it. In fact, it pays out money only if you die.
The other kind of life insurance
The other kind of insurance is called cash value insurance. This is because it does actually developed a value over the years. Let’s suppose you have one of these policies and surrendered after 10 years. You would get a portion of your money back at that time, depending on what your monthly payments had been and the terms of your policy.
Life insurance salespeople used to say that you need insurance in an amount 6 times to 10 times your annual salary. This means that if you earned $60,000 a year you should have $600,000 in life insurance.
Coverage tailored to your situation
However, this has changed. Today, a good insurance sales representative will sit with you and help you determine how much insurance you need given your situation. He or she might even end up recommending that you buy more than one policy. For example, if you had an 8-year-old and a 12-year-old, a good sales representative might suggest you buy a 10-year policy to provide an education for your oldest child and a 20-year policy to make sure your youngest also gives a college education.
Which type of insurance would be best for you? That’s ultimately a question only you can answer. You need to take a good look at your personal situation, your income and your goals.