What’s a Washingtonian’s Life Worth?
“I’m priceless! That’s what my life’s worth.”
That’s your first thought and it’s undoubtedly accurate—except when it comes to your life insurance needs.
What that question is really getting at is the ideal death benefit for your policy, one that will fit all of your needs and provide the right level of financial protection for your loved ones.
That doesn’t make things any easier. It’s still hard to put a dollar figure on your life, or that of a spouse or life partner, even for insurance purposes alone. There’s no single answer that fits everyone. We all have a range of risks, responsibilities, and budgetary realities that must be considered.
Nonetheless, here’s some valuable insight that might help you figure out the policy face value, or death benefit, that’s right for you. Let’s start with the easy one first.
The Easy Answer When Calculating Life Worth in Washington: Rule of Thumb
If you want to do as little thinking on this subject as possible, here’s the industry rule of thumb: you should carry a policy with a death benefit of somewhere between seven times and 10 times your annual salary. So if you currently earn $50,000 a year, you buy a policy with a face value between about $350,000 and $500,000.
Told you it was simple. Of course, the rule of thumb leaves out a lot. For instance, do your survivors need as much as half a million dollars in death benefits? Can you afford a policy with such a face value? Will your death benefit needs change over time?
So…maybe not so simple after all. Let’s look a little deeper.
Your Financial Needs Might Change Over Time
You’ve got two kids in pre-school or younger. You’re the sole breadwinner. If you were to die tomorrow, your family would be at deep financial risk.
However, if you die in 30 years, your financial picture might be a whole lot different. Maybe both kids will have graduated from college with valuable degrees and now hold high-paying jobs. Maybe your spouse went back to college after the kids left home and currently earns more than you.
The point is, we may have different financial needs over time. That’s why there are several types of life insurance for Washington residents. We’ll take a closer look at two of them.
- Whole life coverage works pretty much as it sounds. It covers your whole life, as long as you keep paying the premiums. Upon your death, your beneficiaries get a guaranteed death benefit of a certain amount split the way you designated.
- Term life coverage also sounds like its name. It means you’re covered for a designated period of time, also known as a term. You can take out a term life policy for 10, 20, 25 years…whatever you need. A death benefit will be paid only if you die within that period of time, as long as you keep up with premium payments.
Whole life policies are ideal when you want to be assured that loved ones will receive a payment, much as an inheritance. Term life might be ideal if you only care about protecting loved ones when they are their most vulnerable—such as when they’re young and uneducated.
While term coverage offers no guaranteed payout, unlike whole life, it’s usually much cheaper, especially if you’re relatively young. That’s because the insurer feels less at risk of having to pay out. If, for instance, you’re a healthy, non-smoking 30-year-old taking out a 15-year term policy, the underwriters think of you as a pretty safe bet. You’ll probably still be alive at age 45, and the insurer won’t have to pay your beneficiaries.
So the type of policy you buy, and the cost to do so, should connect with what you’re trying to do with the policy—for example, protect your kids when they’re young, or offer loved ones a guaranteed inheritance regardless of how well off they are.
Big Dollars in Washington Now Are Smaller Dollars Later
That’s just an awkward way of saying that inflation cuts into any estimation. Your grandparents might have raised their family comfortably on a $20,000 annual income, but that number today won’t work as well.
If you’re 30 years old and you’re shopping for a whole life policy, it’s tempting to think that a $250,000 benefit will be generous for your only child. And it might be—if you die tomorrow or in the next few years. However, if you have more than another half a century of life—which is very possible—that death benefit won’t look nearly as attractive when it’s finally paid.
On the other hand, if you’re buying your first policy well into your 60s, inflation might not have enough time to whittle much value away from your $250,000 death benefit.
The lesson here is that you should consider where you are in life today, and your life expectations, before figuring out a policy face value. You can’t plan for everything, but you can be proactive.
Cost is Always a Factor for Life Insurance in Washington
Well of course it is. You’re either going to be paying for this policy for many years, or for the rest of your life, depending on which type of insurance and what level of coverage you obtain. You will likely notice the higher the death benefit, the more you’ll pay.
This is where your life insurance agent comes into the equation. Your Washington agent can crunch the numbers for you and help you determine what you can afford (or can’t afford not) to carry.
Unlike an agent who only works for one company, an independent life insurance broker can seek the best deals on coverage from multiple carriers, offering you even more competitive rates.
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