Life insurance is a vital consideration in your savings and retirement plan. It is powerful protection for younger people without large investment portfolios and for those just starting their lives together. For middle-aged people with spouses or families to support, it should be part of the conversation about your finances.
Life Insurance for Security and Peace of Mind
On a psychological level, life insurance provides rock-solid peace of mind. How will your family afford to live in their current home and pay for their everyday expenses if you pass on? Would you want your spouse and kids to struggle in your absence? How will the mortgage get paid each month? Is there a plan in place? In this scenario, life insurance can be the primary solution. And for young people, it can be extremely cost-effective (especially term insurance).
Life insurance isn’t just for parents working outside of the house. It makes a lot of sense to purchase a policy for both parents, so a stay-at-home parent would need life insurance, too. Think about everything that spouse does in a day: child care, cleaning, cooking, transportation. If some tragedy struck, the other spouse will need to pay for all those services, and that adds up fast. Life insurance coverage can make sure your family has the help they need to keep going.
Is life insurance necessary forever? The answer is often no. If your net worth grows beyond a certain level (around $2 million), you may have sufficient assets for your loved ones to pay their expenses and live their current lifestyle.
A single person, who does not own property, is probably not a good candidate for life insurance. But if someone else depends on your income, you likely want term life insurance. At Isakov Planning Group, we’ve been saying the same thing for many years: Life insurance isn’t about you. It’s about protecting the people you love. Life insurance replaces your income so your family can stay afloat during the worst-case scenario. It’s not flashy, but it’s essential.
Term life insurance is simple, affordable, and it effectively covers your family while they still depend on you.
How Much Life Insurance Do You Need?
I recommend a 15- or 20-year term policy that will pay 10–12 times your annual income. That way, your family could invest the payout and live off the growth without touching the principal. For instance, if you earn $100,000 per year, you want a term policy that will pay at least $1 million. Policies that may be available through your workplace are generally well below this level. Generally, the younger you are, the longer you’ll need coverage (thus, a longer term).
This may not apply to semiretired or retired older people, for whom life insurance premiums can become very expensive, indeed. For those folks, the equation may be different. For example, they may only require enough insurance (and for long enough) to ensure their savings and investments provide the necessary principal to live through their retirement years. So they may need lower value policies with shorter terms to get them to that threshold.
At Isakov Planning Group, we advise our clients to review their financial and savings status as often as practical. Contact Isakov Planning Group for a no-obligation financial review, including how affordable life insurance coverage fits into your overall financial plan.