How Big Should My Benefit Be?

This is a top concern for individuals who are considering life insurance for the first time.  It is common knowledge that the purpose of a policy is to make sure that your loved ones have financial security in the event of your untimely passing.  When you have a spouse and children depending on you, having a large enough payout to keep them comfortable is extremely important. 

There are several things to consider when calculating your needs. 

• Monthly expenses:  How much do you spend each month?  Factor in necessities like your mortgage payment, your car payment or insurance, utilities like gas, water, electric, and garbage pick-up, as well as your children's schooling or extracurriculars, fuel for your vehicles, food, entertainment, and home maintenance.
• Savings:  How much do you have saved?  The larger and more secure your savings, the smaller your life insurance benefit needs to be. 
• Your Spouse's Age:  The older your partner, the less time he or she will be dependent on your support (and thus, your policy's pay out).    
• Your Children's Age(s):  The ages of your children and spouse will factor into how much coverage you need and for how long, so you can make sure to buy a term policy that will not expire while you still need it (or that will be eligible for renewal at an affordable rate).  
• College Costs:  If you plan to put your children through college, your life insurance policy should include the funding for that endeavor, unless you have it saved elsewhere. 
• Social Security Benefits:  Consider the social security payments your loved ones will receive if you pass on.  These can also somewhat lessen your need for a larger policy. 
• Inflation:  Things are not getting any cheaper, so do not forget to factor inflation (typically 3% over a 20 year period) into your calculations.
• Burial Expenses:  You should make sure your policy included $10-15,000 to cover the costs of a funeral and related services. 
• Debt:  Credit card balances, car loans, and other outstanding financial obligations should be accounted for as well, so that your survivors can pay off those debts quickly and without incurring any losses.  

Online insurance calculators can help you narrow down the specifics, but typically, you are going to want enough to pay off your mortgage, bank funds for your children to spend on college expenses, and keep your spouse comfortable into his or her retirement. 

Remember, cheap term life coverage is not designed as an investment.  You are not spending money with the intention of making money.  You are spending it to protect your survivors from loss and to complete any financial obligations you have.  Make sure you have just the right amount of coverage by working with a trusted professional.    

Useful & Affordable Riders

To get the most out of your coverage, there are a few riders you should consider when purchasing a new policy.  They can help make it fit your current situation and make the overall policy more worthwhile without significantly increasing your premium.  

• Accidental Death:  Otherwise known as Double Indemnity, if the policyholder is killed in an accident, this rider pays out double the regular benefit.  Some companies highly recommend it and make it standard, while others offer it as an option for individuals who feel they need it.  Other advisors suggest that it is a completely unnecessary expense, as you should have a big enough benefit to take care of your loved ones and your outstanding financial obligations under all circumstances.
• Dismemberment:  Typically packed with Accidental Death and referred to as AD&D in that case, a dismemberment rider pays out for various injuries resulting in the loss of body parts or severe damage to the senses, including hearing and vision.  This payment can help to compensate not only for a devastating physical loss but also for the financial losses the family may face if the policyholder is unable to return to work because of his or her disability.
• Spouse Rider:  You can add this to your policy to cover your spouse for the same term.  It is usually cheaper to insure a partner this way, than to insure them on a separate policy.
• Waver of Premium:  This option allows you to maintain coverage without paying your premium if your income production is halted because of an accident, injury, disability, or serious illness.  It can be very useful to have in case of a financial emergency – the last thing you need is to lose your life insurance at a time like that.
• Family Income Benefit:  Give your loved ones a monthly payout instead of a one-time benefit.  This is especially important if you are concerned about your children's finances in your absence and are worried that their guardians will not be responsible with a large sum of money.  This way, your loved ones receive a monthly income rather than a lump sum that requires serious investing and care.
• Accelerated Death Benefit:  If you worry, because of a family history, that you may be diagnosed with a terminal illness while your policy is in effect, this rider allows you to draw from your life insurance while you are still living.  This can make finding care more affordable, and can also help your family if you are no longer able to work.
• Renewal Provision:  Also know as Guaranteed Insurability, this allows you to renew your policy when it expires for a lower premium than if you had purchased a brand new ones at the time.  It is especially important to have such a rider if you are a young adult buying coverage because it will save you money in the long run. 

While every individual does not need every add-on, many are worth considering to maximize your benefit and lead to long-term savings.  Consider each one, and discuss them with your financial advisor or insurance agent before making any final decisions.