Why I Am Buying a $500,000 Term Life insurance Policy

by Jeff Rose on August 18, 2016 · 3 comments

“To encounter a 20 year-old that gets the importance of buying life insurance, is pretty much an anomaly.”

$500,000 Term Life Insurance policyYet, to find one that feels they need to buy a $500,000 term life insurance policy is just insane.  I’m proud to say this is the young man that I hired.

Tyler Ramsey, an investment adviser with my firm, shares the importance of why he bought life insurance for his family.

“A term life insurance policy is a great way to protect your family.  In the event that something were to happen to me having a term policy in place gives me some comfort knowing that my wife will have money to take care of our mortgage, bills, and have some protection for her.”

My wife and I bought our first home early in our marriage.  To protect ourselves if something were to happen to one of us we took out a $250,000 term policy on each other.

Fast forward 4 years and we are planning on starting our family very soon.

This made me start thinking,

“Is $250,000 enough to cover my wife and our future child?”

Sure she would have enough to take care of all our bills and debts, but would it be enough to take care of them while my wife took off work to raise our child? Not to mention the rising cost of a college degree is not something that I would want my wife and child to struggle with in the future.

This led me to purchase a $500,000 30 year term life insurance policy. I am a 25 year old, non-smoker, in good health, so my premium for this amount is $360 a year.

(Editor’s note: It’s a good thing Tyler isn’t a smoker. Life insurance rates for smokers increases drastically!)

This is a small price to pay knowing that my wife and child would be taken care of in my absence.  This amount is a good starter for my family. In the future we planning on having more kids, so at that time we may need to reevaluate how much protection we need.

Here is a few examples of what a $500,000 term life insurance policy will cost.

SexAGE$500.000 Term Policy10 Year Term Policy20 Year Term Policy30 Year Term Policy
Male25Face amount $500,000$170$245$360
Male35Face amount $500,000$170$265$440
Male45Face amount $500,000$345$615$975
Male55Face amount $500,000$855$1,475$2,805
Female25Face amount $500,000$150$214$295
Female35Face amount $500,000$155$230$379
Female45Face amount $500,000$305$485$780
Female55Face amount $500,000$630$1,110$1,525

Getting Life Insurance

If you have never bought life insurance before, the process can be confusing, frustrating, and sometimes ever daunting. Don’t worry, buying a life insurance policy is much easier than it sounds. The first thing you have to do is decide which type of policy you want. There are several types, term, whole life, and no exam. Each of these has different advantages and disadvantages. Term is the cheapest of the options, but is only effective for a certain time period. After that time is up, the policy is no longer in force. It’s pretty much like an expiration date.

After you decide which type of policy you’re going to get, you’ll need to calculate how large of a policy you are going to purchase. There is no “magic number” for life insurance plans, but there are a few things to consider.

The first is how much debt would you leave behind if something tragic were to happen? Do you have a mortgage payment? Student loans? Will your kids have student loans? All of your unpaid expenses can add up and leave your loved ones with more debt than you would have realized. Make sure that your insurance policy will at least cover all of your final expenses.

The other factor to consider is your annual salary. One of the main purposes of these plans is to replace lost income if you were to pass away. The more people that rely on your income, the larger policy you’ll need to purchase. While there are differing opinions, most financial experts agree that ten times your annual salary is a good target.

Saving Money on Life Insurance

Buying a $500,000 policy doesn’t have to break your bank. There are several ways that you can make your policy more affordable. One of the best ways is to focus on your health and quit the bad habits.

As a part of the application process is a medical exam. The insurance company is going to send a paramedic to your house to take simple vital signs and basic health information. The medical exam will consist of getting your weight, taking a blood sample, urine sample, blood pressure, and answering questions about your health and family health history, such as if your family has a history of diabetes.

On top of focusing on your health, you should also work on quitting your bad habits like smoking. Being listed as a “smoker” on your life insurance policy will double or triple your monthly premiums, regardless if you’re in perfect physical health.

Another way to save money on your $500,000 life insurance company is to shop around with different companies. If you already have different insurance policies, you can save money by bundling your policies with one company, but don’t automatically go with the company you are already using.

Because every company is different, they all have different ratings and will look at your application through different eyes. You could end up with drastically different rates from one company versus another. If you want to make sure that you get the most insurance for your money, get quotes from several different companies before you pick one of them.

Life insurance is the best purchase that you can make for the financial protection of your family. You’ll sleep better knowing that no matter what happens, your family will be taken care of.

 

 

{ 3 comments… read them below or add one }

Charles February 20, 2015 at 8:08 am

This article makes me think we’re seriously over paying for life insurance. My wife and I got “preferred elite” rates with Allstate for the same 30 year 500k policy with child rider. We pay close to $1200/year. Is their any point in shopping around? Biggest challenge was that we didn’t want to go through the medical exam multiple times.

Reply

Jeff Rose February 20, 2015 at 5:03 pm

@Charles There’s definitely a good chance that you are. You can always get rates from us, and I get a sense of what your new rate would be. You would have to do one new medical exam to verify your status (if not much as changed I can’t imagine you not getting Preferred Plus all over again). If the new policy is definitely cheaper, then you take out the new policy and let the other one lapse. We have many clients that do this and save hundreds per year.

Reply

Heather Sedore August 5, 2015 at 6:36 pm

Hello, my husband is disabled. I work part time as a cleaner at a school. I am hoping to get more hour as soon as I get back to work from back surgery. We have a 4 year old son. We want to make sure we have plenty of money if one or both of us go. So we would like 500 thousand. I know that seems like a lot. But we want to make sure we are all set for our family.

Thank you, Heather Sedore

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