We are looking to get life insurance for my husband and myself. Permanent over term. Im a stay at home mom of 3 kids and we are planning to have another baby. We are currently living in Europe because my husbands job is here. We are renting but want to buy a home. We plan to move back to the US at some point, when. show more We are looking to get life insurance for my husband and myself. Permanent over term. Im a stay at home mom of 3 kids and we are planning to have another baby. We are currently living in Europe because my husbands job is here. We are renting but want to buy a home. We plan to move back to the US at some point, when my husband can find a secure job there and when we can save the money to be secure in an unstable economy.
Best Answer: How much life insurance? The best answer: An amount you can easily afford.
I've been handling life insurance and estate planning for twenty years, and along the way, I've learned some fundamental truths:
1. Some life insurance is better than none, when someone dies and there are people who need cash immediately.
2. The best kind of life insurance is the kind that is inforce when you die. Period. All other answers to that question come in a distant second.
3. Nobody ever has too much life insurance when they die. While one can become premium poor, there are exactly zero recent widows/widowers in probate court wondering what to do with all the excess cash. The opposite is the rule: Everyone wishes there was more.
Here are some ideas to chew on, regarding the amount:
1. In a perfect world, the proper amount would be the Human Life Value. I've included a link below that can quickly give you an idea of what that amount is. This is what an attorney would use to determine the value of someone killed in a wrongful death court case.
2. Financial underwriting guidelines are another good place to start. Insurance companies will NOT over-insure any single life, without a justifiable and verifiable reason. Here are some widely used financial underwriting limits for income replacement using life insurance:
Age 18-40 -- 20-25 times annual earned income
Age 41-50 -- 15-20 times annual earned income
Age 51-60 -- 10-15 times annual earned income
Age 61-65 -- approximately 8 times annual earned income
Age 65+ -- roughly 5 times annual earned income
You may notice that these amounts are much higher than the 6-10 times that many "financial gurus" recommend on the radio or in magazine articles (and they can do that, because they have no risk of loss when YOU end up broke by following their advice, whereas a professional insurance agent carries some liability for making a poor recommendation).
3. Use the "risk free" rate of return to determine the capital required to replace income. Right now, the "risk free" rate is only about 3%. That's $30,000 interest per year from a $1,000,000 lump sum. Having delivered hundreds of death claims, I know what beneficiaries do with their money: They put it in the bank. That's why I use the "risk free" rate of return as a proxy. Anything more than that is "blue sky" and that's gambling.
Regarding Permanent vs. Term: To really answer that question requires an in-depth fact finding session with a qualified financial advisor, and that's beyond the scope of this medium.
That said, in general, I would recommend term life insurance for temporary needs, and permanent life insurance for permanent needs.
For term life insurance, you should look for a few things:
1. Guaranteed Level Premiums - some companies "project" level based on their current "assumptions" but do not guarantee their premiums to remain level. Those companies that guarantee their premiums are safer for the consumer, but cost a little more.
2. Convertible - You should ask for a term policy that is convertible to permanent insurance without any underwriting. Furthermore, you should look for a policy that has a lengthy time frame in which the conversion option may be exercised. Some policies are only convertible for a few years, others are convertible to age 65 or 70. The better policies will offer you a full portfolio to convert to, not just one policy that the company chooses for you.
One BIG caveat: Since you are out of the country, that presents an underwriting issue that must be addressed. Most countries in Europe are okay from an underwriting perspective, but some counties are not. Where you live AND where you plan on traveling to, for business or pleasure, is a factor that companies will consider when underwriting your spouse (as well as the rest of your family). Some companies specialize in working with clients who spend lengthy periods of time (even years) overseas, while other companies may not make an offer. With that in mind, you should take care to select an independent agent that has experience in working with families who live and work abroad.