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Getting a $500,000 life insurance policy
Do you earn at least $50,000 a year? This amount of coverage could be right for you.
So, you’ve decided to purchase life insurance. The next question: How much coverage should you buy?
Your 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.
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How much does a $500,000 life insurance policy cost?
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. Smoking can double or triple your premiums, even if you’re in good physical health.
Let’s look at a 28-year-old nonsmoking man in perfect health. According to our research on the cost of life insurance, he may be able to get $500,000 of coverage with a 20-year term policy through Banner Life or William Penn for around $19.69 a month. For smokers, the rate could jump to $69.14 a month.
For a nonsmoking 28-year-old woman in perfect health, this same policy could cost $17.11 a month with the same carriers. If she smokes, she might pay $56.24 a month.
Because premiums stay the same amount for the life of a term policy, it makes financial sense to lock down a rate as soon as you can.
Can I get a $500,000 life insurance policy?
When determining your eligibility, insurance companies look at your age and salary.
As with all types of life insurance, 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, they know you’ll be able to pay and that your risk of dying during the term of the policy is lower.
Insurance carriers 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 or unemployed, you may have a harder time securing half a million dollars in coverage — but it’s not impossible. The same goes for self-employed workers.
Can I get $500,000 coverage without a medical exam?
It’s likely. No-exam policies are risky business for insurers, because they can’t get a complete understanding of your health and medical history without a full exam. As such, they set higher premiums for no-exam policies, which fall under two categories: simplified issue and guaranteed issue life insurance.
Most insurers cap their coverage at $250,000, but a handful are willing to go up to $500,000.
For instance, Sagicor Life provides up to half a million dollars of term life insurance coverage for people between the ages of 18 and 65 without an exam. The application is digital, and the underwriters may check your DMV history and pharmacy and records with the Medical Information Bureau. The process can take up to a week, but those in good health might see approval in minutes.
No-exam policies have a speedy turnaround, making them ideal for people who need coverage quickly, like those who want to secure a business loan or fulfill a court order.
Is a $500,000 life insurance policy right for me?
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 5 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:
- Income replacement. How much money would your family need to maintain their standard of living? If you’re the breadwinner, you should carry enough coverage to replace your salary for a few years, so your dependents won’t be saddled with financial burden. If your spouse is a stay-at-home parent or works part time, it’s a good idea to add extra coverage.
- Children. The younger they are, the more coverage you’ll want to get, especially if you’re paying for child care. Most people go for a policy that covers their children until their 20s, when they’re working and earning money themselves.
- College expenses. Speaking of kids, if yours are planning to go to college, consider the future costs. Depending on how many children you have and the schools they’re applying to, it might be worth getting a $500,000 policy.
- Existing debt. Unfortunately, your debt doesn’t die with you. Your policy ideally should take care of your mortgage, car loan, student loans, credit cards and any other debt.
- End-of-life expenses. Many policyholders put aside some money to cover expensive funeral, burial and related costs.
- Long-term care. Are you looking after a sick parent or one who’s in a nursing home? Factor in those costs when calculating your life insurance needs.
- Estate planning and management. As you work your way up the career ladder, you’ll most likely acquire assets and wealth. If your estate is worth $500,000, a life insurance policy can protect it and provide liquidity.
- Savings. What does your savings account or 401(k) look like? Those numbers may lessen or increase your need for life insurance.
- Business ownership. If you own or are a partner in a business, a policy can offer the company financial security as well as cash flow if something happens to you. The value of your business generally determines how much coverage you need.
- Legacy. After you’ve accounted for financial responsibilities, you might want to think about leaving a legacy. Adding cushion coverage to your policy may bring it up to the $500,000 mark.
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.
But take care with buying too much life insurance. 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 incredibly 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.
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