Updated on 11.23.15

How Much Life Insurance Do You Really Need?

Trent Hamm

I can’t tell you how often I’m contacted by readers who tell me the story of their lives, then ask the big question: how much life insurance do I need? I’ll hear from twenty four year old single women and forty year old men with a wife and three children. I’ll hear from people with almost nothing and people with hundreds of thousands of dollars in the bank. They all ask the same question.

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First of all, term life insurance is the way to go. Other types of policies tie a subpar investment into the insurance policy. If you want to invest, invest separately with a firm that specializes in investments and will customize an investment to meet your needs.

Term policies are simple to understand. They offer a certain amount of coverage over a certain period of time. If you keep up your premiums (your regular payments), if you die within that time period, your stated beneficiary will receive the value of the insurance. So, if you buy a $500,000 ten year term and you die within that time period, your beneficiary receives $500,000. If you live through the end of the policy, you’re back to square one.

Here’s the thing, though. Not everyone needs life insurance. For starters, people who have been careful savers throughout their lives often have no need for life insurance as they’ve accumulated enough wealth on their own to sustain their family. Similarly, people with no dependents often have little need for life insurance if they have much cash in the bank at all (to cover funeral expenses, for example). Life insurance is only necessary if, in the event of your death, people would be left in a financial bind without some sort of resource.

So, the first question is how long should my term be? For parents, you should get a term long enough that the children you plan to have are independent before the term expires. Otherwise, it’s about your own comfort level. Shorter terms tend to have cheaper monthly premiums, but if you aren’t careful with your money, you may find yourself buying a new, more expensive policy in ten or twenty years.

The next one – and it’s often the big one – is how much? I think there are three key things to consider.

First, what’s the income shortfall for the people left behind? Simply put, how much money each year would your survivors need to maintain their standard of living? This isn’t just straight replacing your salary, since they won’t have your costs any more.

Second, how long will they need that income shortfall? If you have young children, it will be quite a while. If you just have a partner, they may not need it for as long. You should talk this over carefully with your partner so that you both can make a realistic decision. I usually encourage people to calculate for their children’s needs until age twenty or so.

Additional things to consider: your own funeral expenses, the cost of college for your children, any donations you’d like made in your name, and special care needs (for example, if you’re taking care of an elderly relative, who will do it when you’re gone?).

Third, how much do you have now? What’s in your savings? Your investments (like your 401(k))? What other insurance policies do you have? Would your family stay in their current house, or would they downgrade?

The calculation is simple. Figure up the first number, multiply it by the second number, and then subtract the third number. That’s how much life insurance you should have, in a thumbnail sketch.

If you’re unsure about certain numbers – and you probably will be – round up. It’s better to aim too high than to aim too low and let people down.

In the end, though, remember that the real thing you’re buying with life insurance is peace of mind. Going through these calculations and then actually purchasing a policy serves the purpose of letting you sleep better at night.

Good luck!

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  1. chacha1 says:

    Our immediate goal is to have zero debt, at which point we’ll be able to live on one income (and save the other). When that goal is met, we won’t need term life anymore. But UNTIL then …

    I bought a $500K policy through my bank, it’s $14 a month and that would more than cover DH if I drop dead of a heart attack. But I couldn’t get him to make a similar commitment. For years I tried! Guys, why is this? If he dropped dead, I would be bankrupt, because I can’t pay all the bills on my income alone.

    Fortunately, my new employer offers supplemental term life coverage for employees AND spouses. I was able to cover both of us, $100,000 each, for about $40 per month ($20 per pay period).

    But this self-employed person I’m married to still doesn’t have disability insurance (and yes, he could be getting it inexpensively through our state). So we’re still not exactly secured against all hazards.

  2. Ben says:

    Much needed post! Most mainstream financial planners advocate for an enormous amount of life insurance that just isn’t necessary for most people.

  3. J says:

    Doesn’t inflation need to come into the picture (especially with respect to costs like college?)

    @chacha1 — both my spouse and myself have a term policy. There were none of the issues you describe. It sounds like time for hubby to realize that to be an adult you take responsibility for you and yours.

  4. matt says:

    A big this, I have enough insurance to cover the costs of my funeral and to pay off my house with a little extra left over. I’m sure if I died unexpectedly my partner could afford to sustain themselves by either living in our current home (and paying it off) or selling it and buying someplace smaller in cash. She most definitely can’t afford the mortgage payments without my income however, and I wouldn’t want to leave her in that situation.

  5. Jared says:

    Trent, I think that you’re leaving out an important aspect of life insurance: how much you *want* to leave behind. I completely agree that calculating how much life insurance you need is step one, but figuring out how much you want to leave behind is step two.

    In my case, I make $50k/year and my husband makes $90k/year. He can definitely live reasonably well on his own financially, so I wouldn’t say that I need any life insurance beyond money for death expenses and perhaps some extra so that he could take some time off of work to work through some of his grief. That maybe comes to $20k, $30k, maybe $40k? I’m not sure of an exact number.

    However, I have much, much more than that in life insurance. I’ve maxed out my employer’s life insurance program for $400,000 with relatively little cost to myself. “Why?” Well, why not? My husband is currently finishing law school, so even though he doesn’t need the money he could definitely use it toward that end, and getting through law school without worrying about debt would be a huge weight off of his shoulders. He’d also like to take a year off and travel around the world, which this would be more than enough to do. Or maybe he decides to move and start over somewhere else, in which case this would allow him to buy a house somewhere.

    None of those are things he needs, but they are all things I’d like him to be able to do. Nothing could replace me, I know that, but I like knowing that I’ll have helped take care of him financially in a major way even when I’m not around.

  6. Sara says:

    I’m single with no dependents and have a lot of savings in the bank, so I probably don’t need life insurance, but my employer provides it. I get a policy worth my base salary for no cost, and I pay about $3/month to double that.

  7. Geoff says:

    As P&C insurance agent who also sells some life insurance I agree with #5 Jared. How much do you WANT to leave after your death. And not just to your loved ones. I am finding more and more of my clients are asking for policies that don’t have a spouse or child as the beneficiary. They are naming churches, schools and charities as sole beneficiaries. Many of these people maybe already donate to these causes annually and feel that when they die, they would like to continue what used to be a small donation (which churches and charity use to survive) in one large lump sum.

  8. Molly says:

    Exactly. I DON’T need life insurance right now. We rent, and my partner can easily afford to take care of rent payments on his own until he could move to a cheaper place. All our fixed expenses are small enough that he could take care of them on his own. And there’s enough in savings to cover a funeral, travel if needed, and some time off for him. Plus, when he finishes school, his income will be plenty. At that point, I may not be working, so we will re-evaluate our need.

  9. NRB says:

    I think a blanket statement like “term is always better no matter what” is kind of off base.

    I’m happy with my whole life policy. It’s projected to grow to around a half million at time of retirement.

    At age 65 I don’t have to pay anymore into it.

    Considering that my wife is younger than I am, and that men die earlier than females, I feel better knowing that she’ll have a nice tax-free lump sum that she can dig into without being taxed to death withdrawing solely from the 401k.

    I don’t want to think about how much term would cost at age 65. A heck of a lot more than zero, which is what I’ll be paying at that age for life insurance, yet still have around a half million waiting for her, tax-free.

    I understand your point about being “self insured”, and to an extent I agree, but don’t count the chickens before they come home to roost…and don’t put all your eggs in one basket, either.

    Just sayin’.

  10. AnnJo says:

    One thing to keep in mind is that term insurance gets much more expensive (and sometimes simply unavailable) once there is any indication of a chronic health problem like heart disease or diabetes. When you’re young and healthy, a term life policy is so cheap that even if you have few or no dependents now, it’s worth considering if you ever hope to have a family, especially if you have a family history of disease at an earlier age, or if your parents or a sibling are likely to need help in the future.

  11. You are right that some people don’t need life insurance, there’s no one who needs them for financial support.

    John DeFlumeri Jr

  12. ChrisD says:

    ‘I think a blanket statement like “term is always better no matter what” is kind of off base.
    I’m happy with my whole life policy. It’s projected to grow to around a half million at time of retirement.’

    The insurance company takes your money, invests it in the stock market and uses that money to pay you. They keep a LOT of that money. That is their profit
    If you put the same amount of money in your own investment fund, you will have MORE than half a million. Also you don’t have to wait till you are dead to get it, you have complete control over it.
    If you want safety in case you drop dead, get term insurance.
    If you want to save up, then save up.
    It is safe to say term is the only kind of life insurance worth getting.

  13. Bonnie says:

    @Chacha1-you should really check on that $500K policy for $14/mo. Even term insurance isn’t that cheap at the best health ratings. It’s probably an Accidental Death & Dismemberment policy, which banks give out like hotcakes because it costs nothing. Insurance companies almost never pay out on them because hardly anyone dies of an accident or becomes dismembered. Most people die from some sort of health issue.

    Trent, for most of your readers (who are in the “accumulating wealth” rather than the “distributing wealth” phase of their life), term insurance would be the best choice. However, it should be noted that there are many reasons to use permanent insurance, from estate planning to tax-free supplemental retirement income for those who don’t qualify for a Roth IRA to business insurance purposes. Just because Suze Orman likes to make blanket statements, doesn’t mean that you have to follow the leader and make the same mistake. Your blog is my favorite and I like to believe that you’re better than that.

  14. almost there says:

    Don’t knock other than term. I have both term and universal life insurance. The term runs until I am 70, about 20 more years. But I have a paid up universal life policy that cost Just under 61 thousand dollars for $330 thousand. Cash value $81K. It is worth 338K now and with a 7.4% crediting rate less mortality cost it will grow to be quite a bit in 30 years if I live that long. I can borrow 75% of cash value at .5% and turn it into a long term care policy if the doc gives me a year to live. Of course most ins companies are for profit. Mine was one of two chartered by congress over 100 years ago as non profit for the navy and army. (NMAA & AAFMAA) I could not have done better investing by myself.

  15. almost there says:

    Oh, I forgot to add my equity account, so my cash value is just under $90K. Compared to my IRA that has a 1% return over 25 years it was a good choice for me.

  16. Torrey says:

    I have a $500K policy and I pay about $17/mo through ING. I think even if I get wealthy, I would still have it.

  17. Wendy says:

    @Bonnie- you bring up a good point about AD&D insurance, but a 10 year policy for $500k for a 25 yo female in great health is $14 from my insurer.

    @chacha1- i agree with the other poster that it wasn’t a problem for my husband and I to talk about and get the insurance we needed for each other. However, I did all the paperwork, and all he did was sign the paper and go the physical that I scheduled.

  18. lhamo says:

    For those with young children, an important factor to consider is what survivor benefits your minor children (and the surviging spouse caring for them) would get through social security. This can be a significant sum, and is often totally ignored when people talk about insurance needs. We have decided not to buy extra life insurance coverage (outside of what we get at very low cost through our employers — enough to pay off the mortgage, at a minimum) because our SSI survivor benefits equal or exceed the current take-home pay of each spouse. We are living well below our means, so extra money from an insurance plan would be nice, but is not needed. I am always surprised when discussions of insurance ignore the survivor benefit — it is significant and makes a huge difference for many families (my own college costs were paid in part with money saved from SSI payments I got after my dad died when I was 15).

  19. Leslie says:

    I am a SAHM (mostly…I work VERY part time and don’t bring in enough money to count in the life insurance discussion). When we were deciding how much life insurance to buy on my husband, these are the things we wanted to take care of:

    1) enough money for me to pay off the house.
    2) enough money for me to put lump sums in each of the kids 529 plans to cover future college expenses.
    3) enough money to support us while we grieved and and then rearranged our lives to function without him. This amount needed to include enough money for me to get any additional education that I might need to re-enter the work force and pay for any childcare I needed to help make that happen.

    We ended up with about 8 times his salary (7x that we bough on our own plus what his company provides without any additional charge to us).

    Don’t forget to get term insurance on BOTH spouses, even if one is a SAH parent. If something happened to me, my DH would have to start paying for childcare and likely for someone to help out around the house.

  20. ChrisD says:

    IIRC in the UK the value of the stay at home parent was estimated to be £11,000 per year. That means you would have to spend that money (cleaning, childcare etc) but you would have to earn more before taxes to have that money to spend.

  21. Jeroen says:

    I don’t know how it works in the States, but over here (Belgium) I have:
    1. Debt insurance: when either I or my girlfriend die, the other party receives enough money to completely pay of the mortgage.
    2. Group insurance: this is like a 401 (i think), in which I and my employer put money (that’s before tax money) I get that money (+ interest) when I retire, or a certain percentage will go to my girlfriend if I should die before I retire.

    I don’t think I need more life insurance.

  22. michael bash says:

    Tom Cruise is a big star, action movies, a celebrity. Result: celebrity = authority. His opinion is worthwhile though he’s not very bright. Trent, a successful blogger on “financial talk for the rest of us”, thus becomes an expert/authority on cooking. Where did that come from? He recommends “soup mixes” for pity’s sake. Trent should stay where he started, recommending ways to reduce debt and live within your means. There is IS an authority – on cooking and even life insurance, I’m very unsure. Think on it. Michael Bash, a 65 year old who grew up getting most of this from his parents.

  23. The figure that I have always been told to shoot for is 5x your annual salary.

    And one other note I’m not sure if everyone knows about. Children DO NOT need life insurance! This is one of the biggest scams I’ve ever seen in my life.

    The purpose of life insurance is just like the post said, to take care of loved ones that are left behind. If God forbid something does happen to one of your children, there will be no one left behind who should need any kind of financial assistance because of their passing.

  24. LIsa says:

    HI! Poster #23 Have you thought about paying for a child’s funeral expenses or maybe medical bills that insurance doesn’t cover. A very real possibility today. A funeral can run you a good $10,000 unfortunately, unless you do most everything yourself. Trent,do it yourself funeral would be a good post & way to save money.Such as buying a pine casket , not from the funeral home, but a local maker. Funeral service at a local church, no embalming or vault & maybe burial on own property.

  25. Randy says:

    Don’t forget that most? all? term policies have auto-renewal at the end of the term. So you don’t completely start over. If you develop a chronic condition, your rates won’t sky-rocket.

    I’ve had 1-year renewable term for about 20 years, each year the price adjusts a little (a couple of times it actually went down). My goal is to cancel or reduce it over the next 10 years.

  26. J says:

    And of course, don’t forget to “finish the job” after you get the life insurance policy with a will and trust …. help the survivors out financially as well as giving written instructions and keeping it out of probate.

  27. Vicky says:

    Being in my 20’s, married, and owning a house – I have a life insurance policy.

    It will cover the entire cost of my mortgage, any funeral expenses, and my income for 10 years for my spouse if anything should happen to me, and vice versa. It is so cheap that it is almost a non-issue to have.

  28. Alexandra says:

    I have both term and whole life insurance. Whole life insurance is for tax deduction purposes and figures very heavily into my retirement plan as it pays dividends. But then, we have more money than most, so maybe this technique would not be applicable to most people. But just because you are not there yet, it should not be dismissed out of ignorance. I think Trent does not have the requisite knowledge to comment or blog on this topic with any type of authority.

    Another mistake in the comments is thinking that a stay-at-home-mom should not be insured. Just because you do not get a salary, it does not mean that your work has no monetary value. Were you to pass away, your husband would have to hire someone to take care of the kids, do the cleaning and do the housework. Figure out how much this would cost (how much would a nanny and housekeeper be) and get life insurance for this amount.

  29. verbose says:

    I think Trent wrote this column for all of those people who are emailing him about life insurance, totally clueless as to what they need.

    If you need permanent insurance, then you either already know that, or you need a financial planner. The vast majority of those who are accumulating wealth need term insurance or no insurance.

    As for using a term policy to leave behind “what you want to leave,” I think this is a sales ploy. It’s like using your possible premature death as a lottery. You are probably going to outlive the term of the policy. You’ve paid all those extra premiums for money you wanted to leave, but got nothing from it in the end. If you want to leave an inheritance, save money and invest it.

    Yes, you can keep level-term policies once the level term ends. But the premiums after the end of the level term shoot up to ludicrous levels. This makes sense, because the only person who would keep the policy, rather than replacing it with a new level-term policy (if insurance is still needed), is someone with serious health problems.

    Generally, inflation is not figured into life insurance decisions. Your savings should be rising throughout the life insurance term. Thus, your need for life insurance decreases throughout the term, just as inflation decreases the value of the payout over the same period.

    If you take out too much life insurance, the premium may be more than you can comfortably handle. Think about it: in a bad year, no job, trouble paying the mortgage/rent, would you let that life insurance policy lapse? If you know it’s more than you need, you’d be doubly tempted to spend the premium on something more essential. I know because I did this once.

  30. Nick says:

    Trent, you said that once your term expires, you’re back to square one. Isn’t it true that the term is simply the amount of time that your rate is guaranteed? I think that after the term is over, you can keep your policy, but the insurance company is allowed at that time to change your monthly payment.

  31. I took two big 20 year level term policies around the time each of my two kids were born. I figure by the time they’re in their 20s, I can reduce the coverage.

    I think a big problem with life insurance is that so many people rely on insurance companies to tell them not only how much insurance they need, but also which are the best plans to have. Insurance companies are profit driven, and will always recommend the greatest possible coverage in the most expensive plans (universal typically).

    Term really is the best for most people. The greatest need for life insurance is for young families where money is usually tight. Better a big, affordable term policy than a much smaller universal plan with high premiums and an investment provision. Once the kids are grown and gone the need for coverage decreases dramatically.

  32. Anne says:

    I have to rail against the oversimplified statement that term insurance is always better. Term insurance is also Temporary. Cash value life insurance is Permanent. It’s easy enough to access term insurance in your young and healthy 20’s and 30’s. But what happens when your term policy runs out? Let’s say you’re now 43 years old and have just had a melanoma removed. Or let’s look at a much more common scenario – you’ve been taking anti-depressants for the last 5 years. Insurance underwriters don’t like antidepressants. It’s difficult if not impossible to get underwritten and if you do manage it you’ll be able to get a rated policy with premiums that are much, much higher.

    Sound financial planning looks at many different things. Short-term, long-term, some investments should be more conservative, some more aggressive. You should have both term and permanent life insurance. The term boosts things while you are younger and still working to accumulate “wealth”, the permanent sees you through the mid- and later periods in life.

    I work in the insurance and financial services industry. I will never forget about a couple, in their mid-40’s, who were clients of ours. In looking at their financial picture they were doing well in planning for retirement. Dad and the kids would have been all right financially if mom died. But mom and the kids would NOT have been all right financially if dad died. In fact, there was a gaping hole in their finances that needed to be filled with life insurance. Dad was not a believer in life insurance but eventually came to see the need for it as a way to provide for his family. They scheduled an appointment to discuss insurance options and what would be best for their situation (term vs. permanent and what $ amount etc.). 2 weeks before their appointment, dad had a massive heart attack (no prior indication of heart disease) and died. Now mom has two young teenagers to raise, a family that is grieving and in pain, no $ to pay all the bills. She needs to get back into the workplace and needs a really good job. Not such an easy thing in this economy. Life just got a WHOLE lot harder for all of them and not just for the short term.

    So let’s do away with the blanket statements. It’s my experience that very little in life is black or white. There are far more shades of gray.

  33. Wendy says:

    A lot of people mention using their life insurance policies available at work. However, if you end up so ill that you are unable to work, you would be nearly un-insurable at the point you loose that work benefit. Find out how long you can be on sick leave before loosing your job before depending on a work benefit.

  34. kristine says:


    Even more frugal than DIY funeral- have your next of kin agree to donate your organs in exchange for free cremation. Most hospitals will negotiate this. Get a nice ceramic container from a boutique.

    I have already asked my husband to do this. Then he can have a nice gathering of close family and friends with my paintings and photos of memories around, and my favorite music playing, in our home. (The same way we got married!) Much more personal, and he’ll only have to worry about picking up a sandwich platter.

  35. almost there says:

    #30 Nic, You are correct. Looking at my $500K term policy that is guaranteed for 25 years at $665/year, has the annual premium increase to $23720/year at age 64 and increasing drastically after that. So, yes I can keep the term to age to age 95 (over $201k/year premium in final year) but not at those prices. That is why it is good to take out permenant life insurance at a younger age as well as term.

  36. Bill says:

    I’m about a decade years older than Trent, and $150/month will get me $1 million in 20 year term (at standard, not preferred rate)

    I’m deeply skeptical of policies other than term because of a bad experience with a nearly 30 year old universal life policy.

    For that policy, the investment return that was supposed to offset the cost of insurance never materialized, so I’m now paying 50% more annually just to keep the insurance in force.

  37. almost there says:

    I, ,like Bill #36 got bit my first time around with Universal life insurance. The agent was a retired Lt Col and was selling to military members. He gained my trust shortly after the birth of my child (found by perusing the birth notices and mentioning that a shipmate had a policy through him) and sold 3 policies that had huge surrender charges the first 7 years and was said to be able to earn interest to pay for the premiums within 20 years. What got me out of it was that he never mentioned but found in the fine print that I would pay a $50 commission per year for all 3 policies as long as the policies were in effect. I decided to “Buy term and invest the difference” like AL Williams used to state. So, it was worth it to take a loss and bail out within the second year. All policies are different and one must really read them and find out the guaranteed rate of return vs projected.

  38. J says:


    Maybe you can find a nice container at the thrift store!

  39. Courtney says:

    @ chacha1 – I agree with the others that your husband’s refusal to get life insurance has nothing to do with being a guy. Most men want to make sure their families will be provided for if they die. If I were in your shoes, I would be very concerned at his reluctance to do this.

  40. Sheila says:

    #23 David, I think it might be wise to get at least enough life insurance on your kids to pay funeral expenses. My son had taken out a small policy on his daughter that ended up just covering her funeral expenses, which were around $10,000.

  41. NRB says:

    “The insurance company takes your money, invests it in the stock market and uses that money to pay you. They keep a LOT of that money. That is their profit”
    My whole life policy is NOT invested in the stock market. The insurance company gets their profit from fees, just like financial companies who make their profit from 401ks.

    “If you put the same amount of money in your own investment fund, you will have MORE than half a million.”
    Actually, there is nothing written in stone that says this. Maybe you missed the 40% drop in the stock market last year.

    Meanwhile, my Whole Life policy has been steadily going UP in value. That’s all besides the point though. Life Insurance is a form of SAVINGS, not investment.

    “Also you don’t have to wait till you are dead to get it, you have complete control over it”
    I have control over my Whole Life policy, I can take loans against it whenever I want without having to be approved by some bank. And if I want to miss a loan payment or two, I can with no hassle because the dividends make enough to pay the loan interest.

    Try that with your 401k.

  42. kristine says:

    #38 Jay- You made me laugh! In fact, that would be kind of romantic- sometimes my husband and I will check out second hand stores, then go out for coffee or lunch as a date. He could pick something up at one our favorite haunts! And he’ll smile knowing I would be happy he got a good deal.

    But holy mackeral- who would spend 10,000 to bury someone? That seems incredible. I know funerals cost this much, but it makes me absolutely cringe. It’s such morbid excess, and takes advantage of people at their most vulnerable. I would much rather my family take 10,000 and go on a trip they will remember forever- contributing to life instead of grief.

  43. Sharon L says:

    The other very important reason to have a life insurance policy on children is that should they become ill or injured and disabled as children, that will be the ONLY way they can access life insurance for their spouses and children.

    Spending on funerals has become absurd, but for some people, the more extensive (and expensive) ritual is important for their healing. Also, if you have a family plot you may have no choice but to either pay for the vault or exile the family member to another cemetery. And I don’t know if you have priced headstones recently…

  44. Sheila says:

    #42 Kristine, that’s why it’s important to plan a funeral ahead of time. We have instructions in our will. With that said, when someone dies unexpectedly, especially a child, you’re faced with a myriad of choices (viewing, vault, type of headstone, open casket, etc.–every procedure costs $), and you want the best for your child. My granddaughter was buried in a white coffin with a white satin lining–not the most expensive, but not the cheapest either. Her parents bought a plot that would accommodate them (cremated) as well and paid for a headstone that has a photo on it plus etching. She was their only child. The choices they made for her would not be the same choices that they would make for themselves. As #43 Sharon said, the funeral was a ritual that was important to them.

  45. getagrip says:

    How about a look at numbers? Off a well known insurance agency’s site:

    30 year old male, non-smoker, $50K salary, after fed and state tax, $40K take home, feels he needs a $500,000 policy.

    20 year term – $33/month, $396/year, 1% of take home
    30 year term – $53/month, $636/year, 1.6% of take home
    2nd 20 year term @ 50 – $115/month, 1380/yr, 3.5% of take home
    Whole Life – $436/month, $5232/year, 13.1% of take home

    Total costs if you don’t die:

    20 year term: $ 7920
    30 year term: $ 19080
    2nd 20yr @50: $ 27600
    Whole Life at:
    ten years $ 52320
    fifteen $ 78480
    twenty $104640

    The reason for breaking up the whole life is that most of them have some type of provision where the payments are made from the earnings after some time, typically 15 years. Of course, its not completely guaranteed, a friend who had been bragging about not having to pay insurance had to start paying again about a year ago. He wasn’t too happy about that. But even if it picks it up after ten years, you still pay more over those ten than if you insured for 40 yrs with term.

    So, if you put the difference (12.1 and 11.5% respectively, then later 9.7%) into a Roth for retirement @ 4% above inflation and that your salary only keeps up with inflation, in today’s dollars if you die within the insured period

    20/30 yr term: $500K + $ in Roth(e.g. $0-$144K)
    Whole Life: $500K

    If you die at 51 (e.g. the 21st year), (assuming 4% above inflation)

    20 year term: $150K from Roth
    30 year term: $500K + $ in Roth (about $147K)
    2nd 20yrterm: $500K + $ in Roth (about $150K)
    Whole Life: $500K

    If you die at 61 and kept putting in the difference or full amount (in the case of the 20 year term having ended 11 years earlier)

    20 year term: $275K
    30 year term: $258K
    2nd 20yrterm: $500K + $ in Roth (about $250K)
    Whole Life: $500K

    If you die at 71:

    20 year term: $488K
    30 year term: $463K
    2nd 20yrterm: $447K
    Whole Life : $500K

    Of course I haven’t subtracted the costs of what you put into the plans, just taking the last one at 71:

    20 year term: $488K – $ 8K = $480K
    30 year term: $463K – $19K = $444K
    2nd 20yrterm: $447K – $36K = $411K
    Whole Life : $500K – $78K = $422K
    (15 yr cost)

    So if you live to 70 or so in this example, then die, there really isn’t a difference.
    If you live into your 80s or beyond, and don’t touch the money, it’ll be worth more to your heirs.
    If you die when all the insurances are in effect, and you’ve been investing the difference, your heirs make more money with term.
    If you die and the term policy has lapsed, the whole life is technically the better deal.

    So, the ultimate question is what’s your reality? Are people in your family short lived or long lived? Likely to die young or live until their 90s? Do you make a lot more than $50K a year and are looking for other vehicles to shelter your money? Do you have a need or desire to provide for heirs or adults with disabilities?

    It also comes back to Trent’s original question, how much do you need? But also when do you need it? Many folks start single, move into having dependents, then hopefully those dependents move out and are gone and don’t “need” your support. For most people, the costs of a whole life policy (10 plus times term) mean they end up with less whole life insurance and are inadequately covered if they do die, or they can’t save in other areas and become dependant on the insurance as an investment, which it really isn’t because to collect the big bucks, you have to die.

  46. NRB says:

    getagrip: just one problem with your calculations…whole life insurance is gauranteed to go up in value, an investment account is not.

    But again, it’s apples and oranges.

    Whole life insurance is a form of savings, not investment.

    Term, whole life, and a tax favored retirement account are all part of the financial puzzle.

  47. Georgia says:

    Funerals can be expensive. In our small town, I was able to bury my husband for around $4300. How I did this was: visitation at mortuary, service at the burial site, and a cardboard coffin (less than $1k and able to hold up to 660 pounds.) It was beautiful and no one knew what it was made of unless I told them. I was able to bury him without a vault or liner.

    I have already left instructions with my kids that if I cannot be buried the same way their father was, I am to be cremated.I do not especially wish to be cremated, but vaults cause me extreme distress. I believe God made the best recycling system in the universe for us and why mess up a good thing? When we die our bodies decay and our minerals and vitamins, etc. return to the soil and help worms (who aerate our soil), birds (who eat the worms), flowers & grass (which beautify our world and give us joy.) This is the only reincarnation I believe in. Even after we are dead we can give back to our world.

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