Got Life Insurance? You May Not Have Enough

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Your workplace life insurance policy may not be enough if anyone relies on your income or the care you provide.

If you are going to die, life insurance is a must. You may not have enough coverage if your only source of coverage is through your employer.

Thankfully, purchasing life insurance has been made easier by the pandemic. You may also find coverage cheaper than you realize.

The increasing death rate from COVID-19 has prompted more people to consider their life insurance needs. One in 4 Americans who have life insurance say they purchased or increased their coverage because of COVID-19, according to a NerdWallet survey conducted Oct. 29 to Nov. 2 by The Harris Poll. Fear of getting diagnosed (30%) and knowing someone with it (29%), were two of the main motivators for purchasing or increasing their coverage.

LIMRA, an insurance trade group, found that nearly 6 out 10 Americans (58%) have a greater awareness of the importance of life insurance. About 3 out 10 people (32%) were searching for life insurance because of COVID-19. LIMRA discovered that term policies, which are the most popular type, increased 10% in the third quarter, compared to a year ago. This was the biggest increase in 18 years.

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Alison Salka (LIMRA research director) says, “Obviously, there is a pandemic making people more sensitive to their death.” “So, we are seeing more people becoming aware of the importance of life insurance.”

LIMRA estimates that 30 million households in America don’t get coverage and that another 30 million don’t have enough. LIMRA estimates that the average coverage gap between what people have, and what they need, is $200,000

Marc Cadin, CEO at Finseca, another industry group, says that there is a common perception that “Well, I have it at my job, and that’s enough,” “Most people don’t do the research to understand what would happen to them if they died prematurely.”

Employer-provided insurance policies typically limit coverage to one to twofold the employee’s annual salary. That may seem like a lot, but parents with young children may need 10 times their salary or more to replace their incomes until the kids are grown. Other types of insurance, such as critical illness or accidental death, may not be sufficient to adequately protect you.

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An employer-provided plan might not be enough, even if you have a smaller need — for example, if your partner needs your income to pay the mortgage. You can also lose your coverage if your job is lost, as many Americans experienced during the pandemic.

Your beneficiaries will be protected if you have your own policy. You may also be eligible for coverage quicker and without the need to undergo a medical exam, thanks to the pandemic.

LIMRA’s Salka states that insurers are increasing automating and speeding up the application process. Some insurers no longer send someone to your house to check vital signs or collect urine samples. Instead, they waive exams and only use data from the applicant’s doctor. Salka states that although this trend is already in place, social distancing, pandemic threats, and increased insurance coverage mean that more insurers are using these practices.

Cadin states that life insurance can often be cheaper than people think. For a 20-year policy worth $500,000.00, a 30-year-old woman could pay $193 per year. For the same coverage, a 40-year old man in good health might pay $341.

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Term insurance covers people for a specified period of time, which is typically 10, 20 or 30 years. Term policies are much cheaper than permanent life insurance. This policy has additional features like a cash value that can borrowed against and that increases over time.

Some buyers may be tempted to cut corners due to the higher cost of permanent policies. You should make sure you have enough life insurance if you need it.

What is the cost? You can refine your estimate using a life insurance calculator. If your children are young, you may be able to replace your income for 20-30 years and provide college funds. It may be a good idea to include your mortgage balance and other debts. Consider how much it would cost to hire someone for those services if you are a stay-at home parent or unpaid caregiver. Also, how long the service would last. Your kids might need a babysitter full-time until they are old enough to go to school, and then another part-time until they reach their teens.

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Once you have a total, subtract any “liquid” assets such as college funds or savings accounts. This is the amount of life insurance that you should immediately start looking for.