Do You Have Enough Life Insurance?

By Lynnette Khalfani-Cox, The Money Coach®

Life insurance is one of those financial products that people typically put off buying – sometimes until it’s too late.

How many times have you heard about someone passing away without having tended to critical money matters, like drawing up a will, purchasing life insurance, or getting their financial records in order? Probably often enough to know that you should do better. Fortunately, if you’re reading this article, time is still on your side.

Here’s a look at some key facts about life insurance — as well as some pointers that will let you know whether you have enough life insurance for your family’s needs.

Term Life Insurance Versus Whole Life

For starters, you need to know that there are two main types of life insurance: term and whole life.

Term life insurance provides coverage for a set period of time, or “term,” such as 20 or 30 years. As long as you pay your insurance premiums, your term policy remains active and the beneficiaries you designate can receive a cash payout in the event your death occurs during the time your policy is in force.

Whole life insurance works differently. Instead of lasting for a fixed number of years, it’s meant to last forever. That’s why whole life is also called permanent life insurance.

In terms of cost, buying life insurance is always much cheaper when you’re younger — in your 20s, 30s and 40s. As you get older, and especially once you hit age 50, life insurance prices rise considerably.

Overall, term insurance is far more affordable than permanent life insurance. In fact, permanent or whole life insurance is usually five to 10 times as expensive as term insurance.

Why the big price difference? It’s because permanent life insurance offers far more benefits and features, such as insurance coverage that builds cash value, the ability to provide you with loans or withdrawals from the policy, and you can sometimes even use whole life insurance for other needs, such as nursing home care when you are older.

How much life insurance is enough?

Now let’s get to issue of how much life insurance is sufficient.

A rule of thumb from the American Council of Life Insurers is that, if you have a need for life insurance, you should typically get coverage that is five to 10 times your annual income. So if you earn $50,000 a year, the general recommendation is to have a policy with a face amount of coverage that is anywhere from $250,000 to $500,000. The “face amount” refers to the life insurance payout, the cash amount your heirs will receive.

With a term policy, a healthy non-smoking female in her 30s or 40s would likely pay less than $500 a year for a term policy that has a death benefit of $250,000 to $500,000. 1 For the same insured, permanent life insurance with the same death benefit will usually cost about $2,500 or more for the year.2

So if you just need very basic life insurance protection, or your budget is very tight, term life insurance will likely be the best, most affordable option.

But here’s where things get tricky.

You have to evaluate your family’s overall circumstances and their likely economic needs if you happen to pass away. That’s the best way to determine an adequate amount of life insurance coverage.

For example, do you have children for whom you’d want to pay for college? If so, you’ll likely need higher levels of insurance coverage. What about your residence? Many homeowners considering life insurance would like their home to be paid off in full for their children or a spouse that is left behind.

Finally, are there other personal or family debts that are currently outstanding? If you or a spouse has student loans, a car note, or credit card bills, you should take those obligations into account as well when evaluating your life insurance needs.

Again, life insurance is a crucial part of creating an overall financial plan because life insurance pays out a stated lump sum payment to your beneficiaries in the event of your death. Making sure you have enough life insurance could be one of the longest lasting and final gifts you give your loved ones.


  1. Source: Assumptions for 30-year term coverage for $500,000 is for a 40-year old female nonsmoker in excellent health. 2. Source: Assumptions for whole life insurance are for a 40-year old female nonsmoker in excellent health.



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Extra Credit provides general information to help improve our Member’s financial lives. Every situation is different, so please contact us for guidance on your specific needs. The advice provided in Extra Credit is not intended to serve as a substitute for speaking to a loan representative, financial advisor, or GreenPath Financial Wellness counselor who can help tailor a solution for you.

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