Life Insurance Dollar Amounts

(And why it matters.)

Young family spending time together at home

Nobody likes to think about the day they're no longer living their best life, or living at all, but at the end of the day, death is inevitable. Life insurance is one way to ensure that you don't leave your loved ones in a pit of debt. But, how do you know how much life insurance to purchase?

Sitting down and planning for your death is not exactly a common weekend agenda item. That's why our independent agents are there to ask the important questions to help you determine the face value of your life insurance policy to cover your final expenses and take care of the ones you leave behind.

What is the Dollar Amount of a Life Insurance Policy?

When you purchase life insurance, you pay for a certain amount of cash to get paid out to whomever you choose for when you die. The dollar amount or face value of a life insurance policy is the amount of cash you've determined you want your loved ones to receive. 

life insurance chart

When Do I Need to Purchase Life Insurance?

Unless you're an artist, once you die, you're no longer able to earn money. It's time to look into life insurance when the loss of your ability to earn money would have a negative impact on somebody in your life. 

The most common scenarios where people purchase life insurance are

  • A young husband and wife who are both financially contributing to the marriage and have individual and joint debt such as a mortgage, car loans, student loans, etc.
  • Someone who has young children, under the age of 16, and those children rely on that person's income in order to survive.
  • An older couple who are no longer raising children but still have some debt and rely on each other's incomes to live comfortably.

Simply put, if you're death is going to put someone out financially, it's a kind gesture to purchase some life insurance.


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How Much Life Insurance Do I Need?

The face value of a life insurance policy will vary from person to person based off the type of life you currently live, the type of life your spouse or beneficiary wants to live after your death, your age, your financial situation, and a lot of other factors. 

With that said, calculating how much life insurance to purchase starts with six easy steps.

  1. Sit down with your spouse or beneficiary
  2. Calculate current expenses
  3. Determine potential expenses upon your death
  4. Multiply to fit proper number of years
  5. Purchase life insurance policy of that amount
  6. Evaluate and adjust policy every 5 years

The most important of the six steps is step number two and three, and depending on your scenario you'll want to ask yourself the following questions.

Scenario 1: Young couple with no kids

  • If my spouse dies, can I afford our current monthly bills on my income alone?
  • Do I want to pay off all of our debt as soon as possible? If so, what's that number? 
  • Do I want to go back to work right away or wait several months/years?
  • What will my future expenses be?
  • What will the burial costs be?*

Scenario 2: Young couple with kids

  • How much does it cost for me to raise my kids each month without my spouse's income until they are 18 years old?
  • Do I want to pay for my child's college education?**
  • If my wife is a stay at home mom, how much will I need to pay for services to provide what she was doing?
  • If I pay off all my debts, do I want to continue working?
  • What will the burial costs be?*

Scenario 3: Older couple minimal debt

  • If my spouse dies, how much of their income do I need to survive?
  • How much money do we have in savings and retirement? 
  • What will the burial costs be?*

*According to the National Funeral Directors Association, the national median cost of a funeral with viewing and burial in 2016 was $7,360. 

**According to The College Board, a 4-year degree from a private school in 2033 will cost a mind-boggling $323,900.

What Do I Do If I Can't Afford My Premium

There's a chance that you'll calculate out your life insurance policy, you'll work with one of our awesome agents, and you'll realize that you cannot afford your insurance premium. At this point, you'll want to prioritize your policy.

Start with the least important scenarios in your policy and scratch off money until you get to a premium that you're comfortable with. The lower your life insurance policy, the less the premium will be.

Common Myths About Determining Life Insurance Value

  • Multiple small policies are better than one large policy: Every life insurance has a policy fee attached to it, outside of the premium. If you have a $25/year policy fee, you have to pay that fee for each policy you own. Having 10 small policies means paying $250/year in fees versus $25/year for a single policy.
  • Longer terms are better: When deciding between 20-year or 30-year policies, it depends on your age and situation. Your agent can help you determine a good policy term length for you.
  • Whole insurance is better than term insurance: People will argue that term insurance gets more expensive as you get older, but its simply not true. 
  • You need life insurance even if you have hefty savings and retirement: The sole purpose of life insurance is a cash replacement. If you have enough money in savings and retirement to cover your finances upon death, then there is no reason to purchase life insurance.

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How Do I Find and Compare Life Insurance Quotes?

Our agents work with you one-on-one to evaluate your finances and help you determine how much life insurance is right for you. Based on your unique needs, they’ll shop and compare policies from multiple insurance carriers. And find awesome protection at the best possible price.

Why Should I Use an Independent Agent?

Talking about and preparing for one's death isn't exactly as exciting as preparing for your next vacation. When determining your life insurance dollar amount you need to take the emotion out of it.

That can be difficult, which is why our independent agents can ask the right questions to determine the amount of insurance you need and help you find an affordable policy. That way, all you need to plan is your next getaway.

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