How Our Life Insurance Needs Have Changed Over the Years - What Mommy Does (2024)

FAQs

Does life insurance need change dramatically over one's life? ›

Because as you grow older, your responsibilities change. Your age, your health, your salary, your number of dependents, your financial obligations — all these will evolve over the years and decades to come, and each one plays a part in determining how much life insurance you should have.

Having a child

When your children are young, having sufficient life insurance for each parent is critical. If you or your spouse were to suddenly die, life insurance limits need to be able to pay for daycare, help fund a college education and cover everyday living expenses.

Life insurance policies can be used to pay for mortgage payments, debt payments, funeral expenses or to be used as replacement income to maintain a certain standard of living. However, the amount of life insurance needed can vary depending on the different responsibilities that come with each stage of life.

Dave Ramsey recommends purchasing a policy between $250,000 and $400,000 to offset the increase in expenses your family would incur if you were to die prematurely. To protect your family, you can purchase a 15-20-year guaranteed level term plan that reflects the age of your children.

Life insurance is no longer needed for many people once they reach their 60s or 70s. At this point they retire, their kids have grown up, and they've paid off their mortgage and other debts. However, others prefer to keep life insurance later in life to leave an inheritance and to pay off final expenses.

If retirement savings, investments and Social Security are enough to provide for final expenses and your survivors who still rely on your income—you may not need life insurance in your 60s. In some situations, however, having life insurance after 60 makes sense.

Not everyone needs life insurance. People who've accumulated enough wealth to cover their final expenses and who don't have dependents can usually forgo paying for life insurance.

Term life insurance

It is sometimes called “pure life insurance” because, unlike whole life insurance, there's no cash value to the policy. It's designed solely to give your beneficiaries a payout if you die during the term. Most individual term policies have level premiums, so you pay the same amount every month.

A common rule of thumb is at least 6% of your gross income plus 1% for each dependent. A stay-at-home parent should get enough life insurance to cover the costs incurred by the family if anything should happen to them.

When it comes to timing, the younger you are when you buy life insurance, the less expensive it will be. This is because at a younger age you'll qualify for lower premiums. And as you get older, you could develop health problems that make insurance more expensive or even disqualify you from purchasing a plan.

Does life insurance change with age? ›

Life insurance rates usually increase as you get older because advanced age typically corresponds to health complications or a shorter lifespan. This means insurance companies can generally expect a claim payout will come sooner for an older person and will often charge a higher premium to offset that risk.

The rationale behind using age as a major factor in setting rates is straightforward. The older you are, the closer you are to reaching your life expectancy, which poses a higher risk to the insurance company of having to pay death benefits to your beneficiaries.

In a word, yes. Because couples might assume that only an income-earning parent needs life insurance, they often skip coverage for the stay-at-home parent, says Jason Hill, founder and president of Client Focused Advisors. It's a mistake to overlook the financial support a stay-at-home parent provides.

Yes, with their consent. In order to take out a life insurance policy on a parent or anyone else, you'll need some of their information, their signature, and if you want to own the policy, proof that you will be financially impacted by their death.

Sooner rather than later, you'll want to buy a policy that's 10–12 times their expected income. Then they'll be covered either way—whether they're doing the SAHP thing or going back to work. Since the cost of life insurance increases as you get older, don't wait until the SAHP returns to work to get their policy.

The price may increase each time you renew the policy because it's based on factors like your age and health status. Decreasing term: Your premium payments decrease over time, which can result in a smaller death benefit.

Universal Life Insurance

Under most contracts, premiums and/or death benefits can fluctuate at policyholder discretion. The policy stays in effect as long as the cash value is sufficient to cover the cost of insurance and loans can be taken against the cash value of the policy.

“Every birthday puts you one year closer to your life expectancy and thus, you are more expensive to insure,” says Huntley. He estimates that rates increase every year by 5% to 8% in your 40s, and by 9% to 12% each year if you're over age 50.

Generally, this cash value can grow quickly in the early years of the policy. Then in later years, the cash value accumulation slows as you grow older and more of the premium is applied to the cost of insurance.