For most people, a $100,000 life insurance policy may sound like legitimate coverage and that may be true.
There are circumstances when $100,000 in coverage will likely be sufficient, but in reality, it’s typically not enough if you want to replace your income when you’re no longer here.
Think about it, what are all the things you pay for while supporting your family. If you’re single. $100,000 may be fine, but if you’re married and plan on having children, you’ll likely need quite a bit more.
Let’s take a look at different family scenarios and attempt to determine how much life insurance you may actually need.
Table of Contents
Single Adult with no Children
Most single adults feel life insurance is a waste of time because there will be no one who is financially affected when they die. However, that’s simply not true.
When you die, pretty much no matter who you are or how you die, there is a cost to dispose of your body. Unless you are living “off the grid,” someone is going to have to pay for your funeral, burial, or cremation.
Since it’s been established that the average traditional funeral in the U.S. costs between $8,000 and $10,000, $100,000 in life insurance coverage should be plenty. Moreover, it may also be enough to cover final expenses and leave a chunk of change to your parents or your favorite charity.
And, quite frankly, there’s not much difference in premium between a $100,000 in life insurance and $50,000 in life insurance. Here’s proof in case you don’t believe me:
$100,000 versus $50,000 for a very healthy male non-smoker at different ages (20-Year Term)
|Age of Applicant||$100,000 Policy||$50,000 Policy|
As you can see in the above chart, there’s simply not enough difference between the rates for $50,000 and $100,000 life insurance, so why buy the smaller policy?
Single parent with one or more Children
Certainly, when a child or children enter the picture your responsibility changes dramatically. Now you have to consider who’s going to raise your kids if you die unexpectedly and how much money they’ll need to raise him or her or them.
And, there’s that nagging cost of a funeral, burial or cremation that needs to be addressed. In this scenario, $100,000 in life insurance just might cover it but it’s highly unlikely.
Here’s why. What will it cost for someone else to raise your kid or kids if we just consider the basics?
According to TheStreet.com, it would cost about $233,000 to raise a child from childbirth to age 17. But what about college? If you plan to leave enough money behind to cover college expenses, you’re now looking at an additional $40,000 to $50,000 depending on the state.
So, now we’re looking at about $283,000 per child plus another $10,000 for your funeral. Let’s take a look at what your life insurance will cost with one or two children and a funeral.
Here are the coverage scenarios for very healthy male non-smoker for a 20-year term life insurance policy:
|Age of Applicant||$100,000||$250,000||$500,000||$750,000|
It’s important to note that most of the rates listed above are from an insurance company that does not require a medical exam as part of their underwriting.
Married with one or more Children
In the “married with children” scenario, you’ll need to consider all of the above-mentioned costs along with an understanding that your spouse will need to continue paying living expenses (often past the age of 18) as well as other costs that will need to be mitigated.
Most surviving spouses will need additional funds for paying off the mortgage and having additional funds for retirement planning. When you are considering purchasing enough life insurance to replace your income when survivors will include a spouse and children, it typically makes better financial sense to use a life insurance calculator which can easily be found online.
It’s a good idea to have accurate answers for the following questions:
- How much should you leave for final expenses (funeral and burial)?
- What are your outstanding debts excluding your mortgage?
- What is your outstanding mortgage balance?
- How many children need college funding
- What is your child or children’s current age and are you planning for a public or private college?
- What are your family’s annual expenses today?
- How many years do you want to cover those expenses?
- How much liquid assets do you currently have?
- How much have you saved for your retirement?
- How much life insurance do you have now?
- What is your spouse’s annual income?
- How many years do you expect him or her to continue working?
- What is your spouse’s marginal tax rate?
- What is your estimate for inflation?
- What is your average after-tax investment yield?
Once you have completed these 15 steps, BOOM! You’ll know how much insurance you really need. If you’re like most family breadwinners, that number will probably be north of $500,000.
How to get the best rates on Term Life Insurance
Now that you know how much insurance you need, the east and quickest way to get started is to contact the insurance professionals at InsuranceQuotes2Day.com for a fast, free, and confidential quote.
If you want low-cost term insurance, they’ll quote your circumstances with all of their carriers and offer you the best value available.
If you prefer life insurance with a savings component for wealth accumulation, they can deliver that as well along with retirement planning advice that won’t cost you anything since they’re paid by the insurance company you select to do business with.
Here’s a list of the insurance companies we depend on to offer you the best solution for your insurance needs and budget:
Frequently asked Questions
Is a $100,000 life insurance policy expensive?
Term insurance rates depend on your age, health, and coverage amount. A very healthy male non-smoker can buy a term $100,000 life insurance policy for less than $10 a month.
How do I known how much life insurance to buy?
The amount of insurance you’ll buy should be specific to your need. In other words, if you have a particular reason like mortgage protection, you’ll need enough to pay off your mortgage. If, however, you want to replace your income, you should use an insurance calculator to get an accurate answer.
Is $500k life insurance much more than $100k?
It depends on your age when you buy it. 25 – 35 year-olds would only pay about $10 a month for $100,000 of life insurance more but when you turn 40, the monthly premium 3 times more for $500k than $100k.