HOW MUCH WHOLE LIFE INSURANCE COVERAGE DO YOU NEED?
If you’re looking for a flexible, comprehensive life insurance policy, whole life insurance may be the ideal solution. Read on to determine exactly how much coverage you’ll need to best provide for your family.
Whole life insurance is a way to leave loved ones with a windfall of tax-free cash upon your death. But how do you decide just how much whole life insurance coverage you actually need?
Some policies are just large enough for final expenses. Others are large enough to fund a college education. How much whole life insurance coverage you need depends on your reason for buying a policy.
Your needed level of coverage is determined by your budget and your reason for purchasing a whole life policy. Let’s discuss the various options available to you with whole life insurance and how that factors into coverage and cost.
WHOLE LIFE SERVES A DIFFERENT PURPOSE THAN TERM LIFE INSURANCE
Whole life is a little more versatile than term life insurance. It’s guaranteed to pay out because it’s with you until your death. On the flip side, most people hope to outlive their term life policies.
So why would anyone ever choose term life over whole life insurance?
Term life is ideal for a very specific time period of your life. It’s designed to cover you during your prime earning years. Term life coverage is intended to replace the income you would otherwise earn and save over your lifetime.
But term life is meant to be purchased during your youngest and healthiest years. It becomes prohibitively expensive to renew at the end of the term. For instance, if you purchase a 20-year term policy at age 30, premiums might become unaffordable when you turn 50.
In reality, if term life pays out, you’ve died too young. As long as a whole life policy is in force, your beneficiary will receive its death benefit, no matter how old you are.
WHY DO YOU WANT TO BUY A WHOLE LIFE POLICY?
Whole life insurance always pays out — guaranteed. As long as you pay your premiums to keep the policy in force, whole life will pay out whenever you pass away.
That means you’ve got some options for making the policy work for you and your goals.
How much whole life coverage you need is largely dependent on your plans for the policy. Whole life insurance is perfect for:
- Paying final expenses
- Settling remaining debts
- Starting a college fund for grandchildren
- Establishing an estate
- Leaving a gift for loved ones or to charity
You may also elect to make one large lump-sum payment into your policy — a form of whole life insurance called single-premium life insurance. This creates an even larger death benefit to pass onto your beneficiary.
Once you’ve discovered your reason for choosing a whole life policy, you’ll have to determine how much coverage you need to accomplish your goals.
SO HOW MUCH WHOLE LIFE INSURANCE COVERAGE DO I NEED?
Whole life insurance is intended to pay for things other than the bulk of a mortgage or hefty student loans. American men and women have an average life expectancy of 76 and 81 years, respectively. At such ages, major debts and expenses should be minimal — if not paid off entirely.
Whole life insurance payouts can be used for tying up loose ends or leaving a lasting reminder of your love.
Everyone’s situation and needs are different. Some may want just a small whole life policy to pay for final expenses. Others may want to pay for a grandkid’s college education.
First, you need to determine the costs associated with why you want to buy a whole life policy in the first place. Consider the following statistics:
- The average cost of funeral and burial expenses in 2017 was $8,755, according to the National Funeral Directors Association.
- 42 percent of Americans between the ages of 56 to 61 carry an average debt of $17,623.
- The cost of a Bachelor’s Degree from an in-state four-year college is almost $57,000.
Each of these examples is wildly different. Someone might be happy with a $10,000 policy to cover final expenses. In contrast, someone with four young grandchildren may want to buy a policy of more than $200,000 to pay for their college tuitions.
USE YOUR BUDGET AS A BASELINE
Your budget is an important factor to consider, too. Because whole life insurance is guaranteed to pay out at some point, its premiums are higher than that of a comparable term life policy. You need to be comfortable with the cost of premiums to prevent your policy from lapsing…
…Even if you choose a policy with a smaller death benefit than you’d like. Your grandchild would still appreciate you paying for half of his or her tuition than nothing at all. Some insurance is always better than no insurance.
So figure out your budget. How much would you be comfortable spending on a life insurance premium each month? This will ultimately determine how much life insurance you can afford, regardless of your reasons why.
Next, use our online quote tool to explore your various options. Ideally, you should purchase a policy that meets your needs and desires. If you want to ensure your beneficiary can pay off that remaining pesky debt of $17,623, a $20,000 policy might work perfectly for you.
What if you’d like to leave behind a gift or establish an estate with the proceeds of your whole life insurance?
That’s easy. Simply buy a policy with as large a death benefit as you’re comfortable paying premiums for. When you designate your beneficiaries, you can assign who gets what percentage of the policy’s proceeds.
Keep in mind that, unlike term insurance, premiums for whole life insurance will never increase. Once you’ve purchased a policy, the premium and death benefit is level forever.
WHOLE LIFE INSURANCE IS A REMINDER OF YOUR LOVE
Your passing is a time of grief and mourning for those you leave behind. Whole life insurance lessens the financial realities of your loss so your family and friends may focus on healing. Whatever the purpose of your whole life policy, those you leave behind will be grateful for one more act and token of your love.