When to Get It: Over thirty-four years ago, I announced to my father that I was going to propose marriage to my girlfriend, Tammi. Dad was the type of person that gave his advice freely and often. As a result, I was expecting some lengthy words of wisdom. My father’s first words were “Well it’s about time.” There was a long pause. Then he calmly instructed me to get a will and life insurance. Nothing else was said. I was somewhat disappointed, but my father was right. Marriage is the acceptance of responsibility. When you acquire personal or financial responsibilities is when you should get life insurance.

 

How Much: The first step is determining the death benefit amount. The number of scenarios is infinite. The circumstances range from very simple to complex. A common scenario is a young couple starting their adult life together. The young couple has initial and future obligations to consider. The initial obligation is providing financial stability for the surviving family. The family’s financial stability is how much money does the surviving beneficiary need to continue their future without hardship. The amount will greatly vary between personal situations and choices. The future responsibilities might include debt (home, autos, credit cards, etc.), college for the children, and funeral expenses.

 

Multiply the amount currently believed to be sufficient for family financial stability by two. Add the forecasted future obligations to the adjusted family financial stability. From the sum of the obligations subtract any surplus liquid asset. A comprehensive needs analysis might be helpful, but it is not necessary. That is the minimum amount the young couple should be considering for each spouse.

 

Description
Amount
Family Financial Stability   ($400,000 x 2 = $800,000)
House Loan Balance
Other Financial Obligations
Sum of Initial and Future Obligations
$800,000
$250,000
$50,000
$1,100,000
Subtract Surplus Funds       $100,000 CD
– $100,000
Minimum Death Benefit per Spouse
$1,000,000

 

Why should future responsibilities be addressed early? Younger individuals have cheaper rates and qualify for lower rate tables. One policy per spouse at the youngest age should be less expensive and easier to meet underwriting guidelines than four policies spread out over thirty years.

 

Why should the derived amount be multiplied by two? Life throws everyone curves. Consider the uncertainty. Also, the death benefit can be reduced in the future, but death benefit might not be able to be raised in the future.

 

What to Look For: The next step is determining which product best protects the family and stays within the family’s budget. There are people who believe that the only product that anyone should consider is term insurance, because term insurance is always the cheapest. The thought is wrong. The following chart has the total premium spent through certain time periods for a healthy 25-year old male with $1,000,000 death benefit.

 

Policy Description
Premium Thru Age 65

$55,334.40
Premium Thru Age 75

$143,457.60
Premium Thru Age 85

$52,483.20

Premium Thru Age 100

$422,928.00

20-Year Level Term $137,016.00
30-Year Level Term $309,315.60
30-Year Pay Indexed Universal Life $153,331.20
20-Year Pay Indexed Universal Life

$112,161.60

Indexed Universal Life
 

 

ASSUMPTION: Regarding the term products, the individual can qualify for a new level term product after the initial term at standard non-smoker rates with the same rates available on 07/01/2017.

 

All of the policies in the chart have a guaranteed death benefit. The chart indicates the 30-Year Level Term product is superior in pricing for the first forty years. After the initial 30-year period is completed, the premiums increase dramatically. Between age 75 and 85 the ten-year premium is $172,299.60. The 20-Year Pay Indexed Universal Life product has an $112,161.60 total premium for seventy-five years.

Likewise, there are a lot of agents that believe universal life is for everyone. The bottom line is there are many different types of life insurance contracts. Some of the life products available are bad. In fact some of the universal life products are very bad.   The key is to look at only life insurance products that provide death benefit guarantees, premium guarantees, and yield guarantees if applicable. After narrowing the products, choose the product that best addresses the need and the budget. An experienced professional life agent that puts the clients’ interests first would be extremely beneficial.