LIFE INSURANCE - WHAT KIND - HOW MUCH

Everybody's Uncle,

I am married with 2 children. I have a term life insurance policy. I received a letter from State Farm to convert my term life policy to a permanent life insurance policy.  Is this something I should do?

We have a mortgage of approximately $200,000, one-9 year old and one-1 year old, we live a good life style and definitely want college for both children,

Is $200,000 for each of us enough?
How much life insurance should one have?
I appreciate your response.
 
Diane Weinstein

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Diane,

I do not recommend converting term life to whole life or any other cash value life insurance.

Case against Whole Life Policies:

Life insurance should provide financial security if the insured dies.
Unless proven otherwise, Uncle Jim believes the Insurance Company KEEPS your Cash Value when you die.
If you are told you can BORROW against the cash value - the question is, why do you have to BORROW your own money? Whose money is it, yours or theirs?
If you are told that unpaid loans are deducted from the death benefit, who gets that money, you or the company?

Uncle Jim makes this distinction. Life insurance provides benefits if you die. Cash accumulation provides benefits if you live. Do not confuse these elements.
Insurance companies often blend some term life with variations of whole life that tend to obscure your non-ownership of the cash value. Don't let them fool you.

Uncle Jim says, "DON'T BUY WHOLE LIFE (CASH VALUE) LIFE INSURANCE."

How much term life insurance do you need?

If one of a two-earner family dies, a simple method of determining need is to replace the projected earnings of the departed.

Assuming an average estimated income of $50,000 for 20 years. One million dollars is required. If one receives $1,000,000 in a lump sum and invests it at 5%, the yield would be $50,000 per year and the principle would remain untouched.

A second method is to estimate expense reduction.

In your case $200,000 would pay off the mortgage.
Assume $200,000 would provide for college.
Add $100,000 miscellaneous.

In this scenario %500,000 is required.

In all cases, realistic future events can be factored. Will the surviving parent continue to have income or stay at home to parent the children? For how many years? Will relatives provide day care or other assistance or will day care cost be a factor? Will the survivor remarry? Will relocation be necessary? Some believe that situations re-stabilize in 5-7 years.

Term life becomes more expensive as we age. To provide 20 years of coverage you could buy a $500,000 10-year-term and a $500,000 20-year-term. After 10 years the children are older. The mortgage might be less. Savings and income could improve. Less insurance is needed.

What if both parents die in a common cause? Not pleasant but should be factored.

Consider all the variables and your personal comfort level. When the home is paid off, the kids are out and some investments are in place, discontinue life insurance. Don't pay for things you don't need.

Insurance salesmen work for commissions. Ask how much of your premium goes toward commissions and fees, and if he personally carries Whole Life. Watch him cringe.
Everybody's Uncle