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Last week’s post focused on what life insurance is and why and when it’s needed. Today, we’ll focus more on how much you need and where to get it.
How much Life Insurance do I need?
This can be a tricky question, but it doesn’t have to be with the many various calculators and other tools readily available today. I do caution though against “rules of thumb” — meaning I am not a big believer of you only need seven to ten times your annual salary. That doesn’t take into account any of your debt that you want to pay off, schooling/training that you want to pay for the surviving spouse and/or children, and other family needs. Instead, consider your own family and what you would want to replace financially if a spouse passes.
For the stay-at-home spouse, it’s important to consider the non-monetary contributions they make to the household and how this will need to be replaced if their death occurs. What would the cost of childcare be so that the working spouse could continue to work? Would the working spouse want to take a couple of months/years off of work to stay at home and adjust to the new norm without the stay-at-home spouse? If the stay-at-home spouse primarily cooked the meals for the family, what would be the new cost required to cover this new need (i.e., possibly getting a meal service, hiring someone to help cook the meals, etc.)? These are just a few examples of what needs to be considered before determining a dollar amount for the household work that the stay-at-home spouse completes (and let’s be honest, as a stay-at-home mom, I know how much you do that you will never receive any financial compensation for…just snotty kisses 🙂 ).
There are two calculators that I like to use when considering how much life insurance is needed:
The first is by Life Happens1 and is a great way to help calculate some of the additional needs to consider when purchasing a policy: https://lifehappens.org/insurance-overview/life-insurance/calculate-your-needs/
The second is by NerdWallet2, which can be a good resource for many financial topics: https://www.nerdwallet.com/blog/insurance/how-much-life-insurance-do-i-need/. This calculator takes into account your already accrued assets to help determine how much life insurance you need in addition to your already accumulated assets.
Where to Get Life Insurance
As mentioned in my last post, we don’t sell life insurance at Chief Financial Mom, but instead only act as an educational resource. Therefore, we won’t give you specifics of where to buy, but instead give you general guidelines and principles of what to look for when purchasing a policy.
First, I’d recommend going with an open agent or an open platform versus captive. What this means is that an open agent or platform is able to review policies and costs across multiple insurance carriers versus a captive agent which only sells their set brand. By going with an open agent, you are often able to get the best deal on a product offered from many companies.
The next thing you’ll want to review is the stability of the company. It’s important to go with a company that will be around for the life of your policy. For example, if you buy a 20-year policy, you better make sure that the company you are purchasing the policy from has a solid track record and will likely be around for at least 20 more years. The last thing you want to do is buy a policy from a company that goes out of business before it pays out your policy, thereby rendering your policy ineffective.
Finally, I’d recommend you interview a minimum of three agents. It’s important you choose an agent that you can trust and who knows what they are talking about. (Note: this blog post from Student Loan Hero offers some great questions to ask before going with an agent: https://studentloanhero.com/featured/crucial-questions-ask-life-insurance-agent/).
There are many other components of life insurance, so you’ll want to talk through the many questions you may have with a trusted source. At the end of the day, make sure that you are comfortable with the product and advice you are receiving. Remember, it’s to bring you peace of mind so you’ll have stability if something tragic were to strike.
1 Life Happens is a non-profit organization started by insurance companies to educate the public about life insurance. We do not endorse this organization or guarantee any other information on their website.
2 We are not connected with nor do we receive any contributions from Nerd Wallet. This is meant for informational purposes only and we will not guarantee the results of any calculator.