Everything you need to know about insurance basics, like coverage types, limits, cost and more.
Why You Need Life Insurance for Income Replacement
Your family is the reason you work hard every day. You put the clothes on their backs, the food in their stomachs and you support the things they love to do. Now consider what would happen if you were to pass away. Would your family be able to afford their current standard of living?
That’s why life insurance is so important to have. It’s a way to help replace your income and protect your family if you aren’t around to contribute financially.
Why Should I Buy Life Insurance for Income Replacement?
Think about all the ways you spend your income — car payments, the mortgage, groceries, insurance, new clothes, credit cards — the list goes on. Would your family be able to cover the cost of all these expenses if your income was no longer part of their budget? Income replacement is one of the main reasons many people, especially those who have loved ones depending on them financially, have life insurance. Having life insurance for income replacement means if you pass away, your family could have the financial support they need to maintain the lifestyle they’re used to.
Is My Life Insurance Coverage Through Work Enough?
You may already have life insurance coverage through your employer — but is it actually enough? It depends on what your specific employer offers, but most often employer-provided life insurance doesn’t offer the amount of coverage you actually need.
Say your employer offers you $50,000 to $100,000 of coverage at no cost. This may seem like a lot of money, but if you have a family you’re providing for, you may need much more to replace your income (depending on how long you want your income replaced). And while some employers offer supplemental life insurance coverage at an additional cost, you’re still getting your life insurance from a single source. Which is a problem if you lose or leave your job — since the coverage might not come with you.
That’s why, even if you can get life insurance through work, you should consider adding a policy you purchase and own yourself that will stay with you regardless of where you work.
How Much Life Insurance Do I Need for Income Replacement?
So how much life insurance coverage should you get to replace your income? To get an estimate, take your annual income and multiply it by how many years you want to replace. People often choose five to ten times their annual income. Keep in mind, people with older dependents might not need income replacement as long as those with younger dependents.
Remember, this is just a starting point to help you determine an estimate for income replacement — it doesn’t calculate things like final expenses, your total debt or setting money aside for your children’s college tuition. Your American Family Insurance agent can help you choose life insurance coverage that specifically fits you and your family’s needs.
Term Life Insurance vs Whole Life Insurance
You may have heard of term life insurance and whole life insurance. What are the differences and which is best for you?
Term life insurance
A term life policy stays in effect for a specific term or length of time, often 10-, 15-, 20- and 30-year terms. Level term policies keep the premiums — the amount you pay to keep your coverage in effect — and coverage amount — the amount your beneficiaries will receive if you die while the policy is in effect — the same for the length of term you choose.
Some key distinctions of term life insurance include:
- Lasts for a specific number of years.
- Payout delivered if you die while the policy is in effect.
- Designed with affordability in mind.
Whole life insurance
Whole life insurance is exactly what it sounds like — protection for your whole life. This means you’re guaranteed permanent life insurance coverage and your beneficiaries will receive a death benefit regardless of when you pass away.
Some key distinctions of whole life insurance include:
- Covers you for your entire life.*
- More expensive but coverage comes with more living benefits than term life insurance.
- You’ll accumulate cash value that you can borrow against in the form of a loan.** Some examples of how this could be helpful would be for things like helping with a down payment on a house, college tuition and emergency expenses.
Get a Life Insurance Quote
Ready to take the next step in planning your family’s financial future? Get in touch with an American Family Insurance agent — they’ll help answer any questions about life insurance and income replacement so you get just the right coverage to protect what matters most.
*This is a brief description of coverage and is subject to policy and/or rider terms and conditions which may vary by state. Fixed and guaranteed premiums are statements about the policy as determined at issue, and any changes made to a policy may affect the premium and are subject to our underwriting rules. The words lifetime, lifelong and permanent are subject to policy terms and conditions. Whole life policies mature at age 121. Please check with an American Family agent for details on coverages and restrictions.
** Any loans taken from your life insurance policy will accrue interest. Any outstanding loan balance (loan plus interest) will be deducted from the death benefit at the time of claim or from the cash value at the time of surrender. If the loan balance grows too large for the cash value to support it, the policy could terminate.