Robert Bradshaw Jr., understands talking about life insurance makes many people uncomfortable. Although life is priceless, he stresses the importance of talking numbers. “You need to be honest with yourself and do an assessment of who depends on you if you are no longer able to provide for them,” says Bradshaw, president of Independent Insurance Agents of America, an insurance trade organization that has operated in Virginia for more than 100 years.
Even those who already maintain life insurance should reevaluate whether they have enough, based on the findings of a 2013 study by New York Life Insurance Company. Sixty percent of respondents believed they had enough life insurance while only 20 percent actually did, highlighting a vast disparity in perception versus reality amongst policy holders. The facts prompt
a difficult question: how much is your life “worth”?
That answer, at least for purposes of life insurance, is a combination of your personal financial goals and a balance between need and budget, according to Newport News-based life insurance agent Karen Kennedy. “The amount of insurance could be as simple as enough to cover the burial expenses to providing income for a spouse and any children they leave behind,” she says. “You may discover that the need is greater than your budget will allow.”
How Much Do I Need?
According to LIMRA, a trade association that provides research to financial services companies, industry experts suggest households maintain seven to 10 times the primary wage earner’s income. “Many don’t realize that you are insuring your ability to earn a living and support your family, not to mention pay off debts,” says Juli McNeely, president of National Association of Insurance and Financial Advisors, adding that too many policy holders believe a small policy is sufficient.
- I’m single, so it’s unnecessary. “If you are single, don’t think that you are exempt. Your family will have to deal with expenses you may have left after you are gone,” says Kennedy.
- I’m covered by my employer. “Employer-sponsored life insurance coverage is often inadequate to protect your family,” says LIMRA. Since employers control such policies, Kennedy adds, “they could easily decide to cut and/or limit benefits, leaving you and your family with very limited financial protection.” Often, she says, these plans are very limited term policies.
- I’m young and healthy; I don’t need it. “People don’t realize buying life insurance at a young age saves money,” says LIMRA. “The cost will be lower for a young healthy adult. If one buys permanent life insurance, that low rate is locked in for the rest of their lives, even if they become ill.”
- It’s expensive. “Some don’t realize that term insurance can be more affordable than you might think, especially if you buy when you are young,” says McNeely. Kennedy adds that term life insurance tends to be an affordable option to secure a large debt, such as a mortgage, for a specified period of time.
- I don’t have an income to protect. “We often find consumers believe that stay-at-home parents don’t need life insurance because they don’t collect a salary,” says LIMRA. “It’s important that people recognize it’s not just income you’re replacing.” In 2014, salary.com calculated the annual cost of a stay-at-home parent’s duties to be just shy of $119,000.
While life insurance benefits young, healthy homemakers, Bradshaw strongly recommends life insurance to those with dependents. “The saying, ‘life insurance isn’t for the one who dies, it’s for those who are left behind’ is really a true statement,” he says.