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Your life insurance policy should sync up with your income as well as your financial obligations now and in the future. If after doing the math, you discover that your living expenses and debt add up to $500,000, it’s worth considering that amount for coverage. What’s more, if you’re earning around $50,000 a year, this policy can protect your income if something happens to you — and at a surprisingly affordable price.
Life insurance is tailored to the individual, and the rate you’re given is based on your gender, age, health, lifestyle, job and hobbies, plus the length of your policy. Generally speaking, a $500,000 policy won’t break the bank, especially if you’re healthy and a nonsmoker. And with term life insurance, your premiums stay the same for the life of the policy — so aim to lock down a rate as soon as you need coverage.
For a 20-year term life policy with $500,000 of coverage, 30-year-old nonsmoking man in perfect health would pay $28.58 a month, or $23.06 a month for a women. For smokers, the rate jumps to $83.13 a month for a man or $67.45 a month for a woman.
*Based on sample rates from Policygenius from 10 major insurers, valid as of August 2019
When determining your eligibility, insurance companies look at your age and salary.
The younger you are, the better your position. With a young applicant, the life insurance company assumes your salary and financial responsibilities will increase as you age. In other words, companies know you’ll be able to pay and that your risk of dying during the term of the policy is lower.
Insurers also consider your income. Most insurers will approve you for a policy that’s 10 to 20 times your salary. So if you earn $50,000 a year or more, you’ll likely qualify for a $500,000 policy.
If you’re a student, stay-at-home parent, self-employed or unemployed, you may have a harder time securing half a million dollars in coverage — but it’s not impossible.
The general rule of thumb is to buy a policy that would replace your income — and therefore cover your family’s cost of living — for five to 10 years. If you’re earning around $50,000 a year, you might be a good candidate for a $500,000 policy.
Along with income, take your financial obligations into account. To find that figure, think about everything you pay for now and what you’d be expected to pay for in the future. This might include a mortgage, student or car loans, credit card debt, college costs and business expenses. When your financial responsibilities hit the $500,000 mark, you’re in the right market for half a million dollars of coverage.
When you’re doing the math, consider:
When your circumstances change, re-evaluate your coverage. If you find that your financial obligations and assets are now over $500,000, it’s worth looking into laddering policies for extra protection.
However, your policy should meet your financial situation and needs, not exceed them. If most of the above points don’t apply to you, you may not need $500,000 of coverage.
Life insurance is personal, so it’s up to you to do the math. If your living expenses and debt come to half a million dollars, it’s worth looking at a $500,000 policy. Think about your salary, too. For those who take home $50,000 a year, this policy can offer the protection you might need.
If you’re not sure if $500,000 is the right amount of coverage, it never hurts to compare life insurance options until you find the right one for you.
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