For many people, the idea of buying life insurance reminds them of the annoying insurance agent Ned Ryerson in the comedy of 1993 “Groundhog Day.”
“Do you have life insurance?” Ryerson asks Bill Murray’s character, Phil Connors. “Because if you have, you could always use a little more. Am I right or am I right? ”
More Americans are realizing that maybe Ned is right, especially when we think about the COVID pandemic – 19.
The number of insurance policies life insurance sold increased by 11% in the first quarter of 2021 compared to last year, based on LIMRA, a financial services trade association. Additionally, nearly a third of consumers report that COVID concerns – 19 have made them more likely to buy life insurance coverage in the next few years 12 months, as shown in a recent LIMRA survey .
This is because life insurance can provide a crucial financial safety net if you have loved ones to support . According to the survey, millennials are particularly concerned about leaving their families in a difficult situation if they die, and the 43% said they would likely buy coverage.
Still, many Americans who would benefit from coverage still don’t have it. Recent data for the sector (PDF) show that only the 52% of adult Americans report having life insurance, versus 63% in 2011.
There are several reasons for the lack of coverage. Life insurance is still not a priority for many families who are focused on paying immediate expenses such as rent or groceries, as well as fighting to recover from the pandemic .
Many people put off buying a policy because they think they have enough coverage through their employer, says Tom Fredrickson, a fee-based financial planner in Brooklyn.
“The problem is that your employer’s life insurance benefit is usually limited, maybe 1 or 2 times your salary, and you often lose it when you change jobs,” says Fredrickson.
Therefore, if you have family members who depend on you, take the opportunity to review your life insurance needs.
Given the complexity of these decisions, it would be advisable to consult a financial planner for fees, one that has no direct interest in selling insurance, to help you calculate your coverage needs already knows r how to choose a policy.
You can find tips for choosing a financial advisor or for work with a trustee . In addition, to help you get started, we show you the answers to 3 frequently asked questions about life insurance.
How much coverage do you need?
When it comes to determining the correct amount of life insurance to buy, it is tempting to rely on basic rules, such as buying a multiple of your annual income, suppose it is from 11 to 15 times your salary, such as death benefit. That would at least ensure that your family has resources that should last for a while.
However, most likely online tools or basic rules will not provide the best answer for your financial situation says Steve Parrish, co-director of the Retirement Income Center at the American College of Financial Services.
“It is important to use your own numbers and analyze the specific obligations and needs your family will have,” he says. Parrish.
For example, if you have young children and your stay-at-home spouse needs to go back to work, you may want to finance the additional costs of childcare, as well as University education. You may have to pay off mortgage and credit card debt, have additional medical costs, or have elderly parents who need financial assistance.
It is reasonable to discount any emergency savings or current coverage from the insurance (if you want to keep it) of your financial needs. However, you will also want to increase the amount of coverage to respond to future inflation and salary increases.
What is the cheapest way to purchase a policy?
The simplest and cheapest option is term life insurance. You pay an annual premium in exchange for a fixed death benefit that is awarded to your beneficiary if you die while the policy is in force.
With a term policy, you get the most benefit for every dollar of premium says Steven Weisbart, former chief economist at the Insurance Information Institute, an industry group that provides consumer information.
This frees up more of your cash flow for other expenses, such as your children’s college education or retirement savings.
For example, a man from 35 years of nonsmoking and in good health could pay as little as $ 21 per month, or $ 252 per year, as premiums for a temporary policy of $ 500, 000 to 20 years, according to Quotacy, a company for sure s of life online. Increasing that amount to $ 1 million would cost $ 34 per month or $ 408 per year.
In contrast, a woman from 35 years healthy and not smoking could pay a little less: $ 216 per year for a policy of $ 488, or $ 360 by a coverage of $ 1 million.
If you have the life insurance benefit at work, you can consider the possibility of increasing that coverage, if it is an option. But make sure you shop around beforehand, Fredrickson cautions, as it may be cheaper to buy it separately.
The earlier you make the purchase, the better, because the cost of premiums increases as you age and increases risk of health problems, says Jeremy Hallett, CEO of Quotacy.
A man from 43 years healthy and not smoking could pay $ 1, 056 per year for a $ 1 million policy, while a man of 55 years you may be charged $ 2, 664, as shown by Quotacy data.
Term life insurance has a disadvantage: it is limited. Generally, a policy is purchased for a term of 10, 20 or 21 years; after that, coverage ends and you do not get any of your money back.
When your term policy expires, you often have the option of converting it to permanent or cash value insurance, which combines a death benefit with an investment account, as we will explain below.
By converting, you avoid having to undergo a medical examination, as with a new policy. However, this option will be more expensive than your current temporary coverage.
Should you consider cash value insurance?
With the permanent life insurance policy, you generally get a death benefit and a savings or investment component. There are different types of cash value coverages, including whole life and universal life, which offer a variety of investment options, carry higher costs, and are often complicated.
Where applicable For whole life insurance, for example, only part of your premium goes to the death benefit, so you will generally have to pay a higher premium to get the equivalent benefit that you would get with a term policy. For example, that healthy man of 35 who buys $ 500, 000 in coverage could pay $ 4, 488 per year for a whole life policy, compared to $ 252 for a temporary one, says Quotacy.
Part of your premiums would obviously go to the savings or investment account. But to get ahead, you’ll need to hold a policy with cash value for many years, cautions Glenn Daily, a fee-based life insurance consultant in New York City. If you give up your policy in the first few years, before the value has built up, you may receive little or no money back.
For some people, it may be worth it. consider permanent insurance, such as for those who wish to support their grandchildren or family members with special needs. However, before considering any of these policies, first make sure you’ve reached the limit of all your tax-deferred savings. “Fully fund your 401 (k) and your Roth IRA will provide you with growth with the greatest flexibility.” Daily warns.
Consumer Reports is an independent, nonprofit organization that works side by side with consumers to create a fairer, safer, and healthier world . CR does not endorse products or services, and does not accept advertising. Copyright © 2021, Consumer Reports, Inc.
Consumer Reports has no financial relationship with the advertisers on this site. Consumer Reports is an independent nonprofit organization that works with consumers to create a just, safe, and healthy world. CR does not endorse products or services and does not accept advertising. Copyright © 2021, Consumer Reports, Inc.