You’re considering life insurance to secure your newly forming family, but worried about how much is too much – or not enough. When considering the actual benefit that your family will gain from life insurance, it is important to understand that something is always better than nothing, but leaving behind a larger sum does open up more possibilities for long-term security. Today, we’ll run through the numbers on what life insurance could look like.
A Fictional Example
Imagine you are a 35 year-old non-smoker with no chronic health issues. It is reasonable to expect that you could qualify for a large policy for relatively low cost; in this (purely fictional) example, we will imagine that you will pay $80 per month for a million dollars in coverage over a 20 year term, with a current annual salary of $60,000 per year. For younger people considering life insurance, the numbers can actually be this (or even more) favorable, since it is unlikely that the premium will be collected within the 20 year period. Taking advantage of such a plan can make a world of difference for your family, should anything ever happen to you or your spouse.
By the Numbers
If we look at the math in the above example, we can see what a million dollar lump sum of tax-free cash can do for your family. Imagine for a moment that your beneficiary decides to open a private banking account, and negotiates an interest rate of 6 percent annual interest, with moderately low risk. If your family is able to live for under $60,000 a year, they can actually live entirely off of interest alone, without ever actually touching the million dollar principle. Obviously, this number can easily balloon if they decide to add to their sum of money by working, considering separate investments, etc.
For our fictional 35 year old, $80 a month isn’t much, especially for nearly absolute security in their family’s future; if this character’s salary was $60,000 annually, it would take just about the full twenty years (spending absolutely no money) to earn the same million dollars. If you’re considering taking out life insurance for the sake of your growing Fort Collins family, then we encourage you to do the math on what a life insurance benefit could look like for them.