Life’s critical moments – marriage, the birth of a child, the purchase of a new home – are the impetus for many to seek out life insurance. Of all these milestones, having a baby is the number one driver she’s noticed, says April Markland, operations manager at Michigan Term in Troy. She and her team regularly work with couples to help them determine how much life insurance to pursue.
“Truthfully, most people don’t have enough,” she says. “Many people consider just their family’s immediate needs upon death – funeral costs, paying off their mortgage and paying down credit card debt. They’re not necessarily thinking ahead to how the family would get by without them especially if they are the primary breadwinner.”
Markland says that the most thorough way to determine how much life insurance is enough is for couples to sit down and make a list of all of their household expenses for an accurate understanding of how much money it actually takes to run their home.
“Parents also need to think about their child’s college education and whether they want to help with that,” she says. “Then there’s also the consideration of parents who have a child with special needs who may need care longer.”
If parents want a faster way to estimate their needs, Markland says a general rule of thumb is life insurance to covering 10 to 25 times their annual income.
“The younger they are, the more income earning years they still have ahead of them,” she says. “Younger parents with younger children should consider an income multiple closer to 25. If parents have older kids and are closer to retirement, they may choose to go with a multiple closer to 10.”
Markland maintains that spouses should have fairly equal coverage even if one is a stay-at-home parent.
“Death benefit proceeds are most frequently paid as one tax-free lump sum payment, and you have to make that last,” she says. “What seems like a large amount isn’t always so large after paying bills and given the current low interest rate environment.”
Markland also encourages parents who are business owners to factor that into their life insurance planning.
“If you or your spouse own or are a partner in a business, you have a financial stake,” she says. “When you die, does your spouse start working in your place at the company? If you name your business as the life insurance beneficiary, however, the business can buy the surviving spouse out.”
Individuals and couples just beginning to think about life insurance coverage can call Michigan Term at any time to ask questions with no obligation to purchase.
“Even if you already have life insurance, we can help you determine if it’s enough,” she says.
Those who choose to proceed will need to fill out some application paperwork and send it back. A physical exam at the applicant’s home will follow.
“We will work with our more than 15 insurance carriers to find you the right policy that fits your budget,” she says.