What type of coverage are there?
There are essentially categories of life insurance products:
There are some derivations of whole life, they are Variable Life, Universal Life, and Universal Variable Life. These four types of life insurance are more of an investment/savings program with a much smaller life insurance component.
I do not believe whole life is a good option. As such you will need to explore these options on your own. If you do want to consider them I think you need to ask the following questions regarding such a plan?
- What is the death payment amount (insurance component)?
- Is my investment tax sheltered?
- When can I withdraw the principle, interest, on my investment without penalty?
- How many years will I have to pay premiums before I am not upside down in my investment?
Buying whole life is not going to adequately cover your life insurance needs. You will still need to purchase term life insurance. For the cost of whole life premiums you will find that you can buy a term insurance policy with at least 10 times more life insurance coverage, take the premium difference and put it in a CD or savings account, or bond fund and come out the same as far as the investment component is concerned.
How much term insurance do I need?
There is no "one size fits all" answer to this question. The answer depends on the answer to many questions like...
- How old are you?
- How much is your annual family income?
- Do you have children? How many? How old?
- Does your spouse work?
- What percentage of your spouses income goes towards your budget?
- How many people rely on you for financial support?
- Do you get life insurance as a benefit through work? How much?
These are just of few of the major questions you may need to address. Each of your scenarios is going to be different. Let me cover a few and you can hopefully get an idea about how you need to think about this problem.
Scenario: You are in your mid twenties, married with no children. Your spouse contributes 50% of your family income. Your family income is $100,000 per year. You have a new 30 year mortgage of $250,000.
In this situation you may want to each take out at least $250,000 to $500,000 worth of term insurance. This will provide the survivor with 3-5 years worth of income, cover funeral expenses, make a nice dent in the mortgage.
Life insurance to the beneficary is not taxable. If no beneficiary is named then the insurance payout goes to the estate and is subject to estate tax.
Scenario: You are single and have no one that relies on you for support.
Unless you want to leave money to a charity or create an endowment of some sort it does not sound like you need life insurance provided that you have left enough money for your family to cover the cost of your funeral.
Scenario: Your spouse does not work. You have three children ages 4 to 12. Your annual income is $50,000. You have $10,000 in debt, and owe $100,000 on your mortgage. You and your spouse are 37.
Under this scenario I would think a term policy for the main bread winner between $600,000 to $1,000,000 would be warranted. There are certainly other factors regarding family budget I would want to know. But, such a policy would allow the surviving spouse to payoff the mortgage, the credit card debt, setup trust funds to pay for the childrens college, and provide enough income to allow the surviving spouse adequate time to make a transition into the world of work, and even stay at home raising the children for many years should they so desire.
An important note regarding these scenarios. I am not making any specific recommendations. If I was advising you I would get much more information to help you make the best decision. In the end the decision is yours. In my own circumstances I tend to lean on the side of being insured more than is actually needed. My reasoning is that given my death I do not want money to be one of the things my wife has to worry about. Your own peace of mind is an important factor in making a decision. So is how much money you have in your monthly budget to spend on insurance.
If you are young (40 or younger) and healthy you can buy a lot of life insurance for a small monthly amount. The market is very competetive, and as such prices are affordable. You can also find policies that is you pay a bit extra will lock you in to a certain premium rate for x number of years.
The rate you will get depends on your lifestyle, occupation and health. If you are a coal miner you will be paying high rates. If you are into sky diving or rock climbing or other dangerous activities your premiums will be high. There are many factors that go into determining your rate. It is important you disclose everything. You DO NOT want to omit any information like this on any of the forms you will need to fill out. If you do and it is discovered the claim will be denied. Be honest.
Where to buy?
I would recommend that you google both "worst life insurance companies" and "best life insurance companies" and do some research. Then google "life insurance" and find an independent site where you can get some quotes on those companies. Or, you can contact the companies directly.
I do not recommend buying additional life insurance through your place of employment. It is just too much of a hastle to deal with if you get laid off or end up changing jobs.