Suze Orman's What-If Policy
Types of Life Insurance
There are two broad types of life insurance—term and whole life. Whole life policies provide insurance for your entire life as well as a savings component, but they come with hefty commissions—up to 80 percent of your first-year premium—that are not worth it at all. There are plenty of savings plans other than an insurance policy that are a far smarter move. With that in mind, in my opinion, the only type of life insurance that makes sense is term, which is good for a specific period of time. The premium is based on your age, gender, health, the death benefit desired, and the term.
Here's how to figure out how much insurance coverage you need:
Determine the amount of money the survivors would need to maintain their standard of living if the insured person died. Let's assume it's $50,000 a year.
Multiply that amount by 20. In this case, you want to purchase a $1,000,000 policy. Why multiply by 20? Interest rates are currently at about 5 percent, and if that death benefit is invested at that rate, it will get $50,000 annually in pretax income without touching the principal
I think you should have insurance in place until you're at least 65. Assuming you save for your retirement, once you reach 65 you won't need insurance because you'll have sufficient income from your retirement accounts, pensions, and Social Security.
The younger you are when you purchase a policy, the lower your monthly premium. For example, a 35-year-old woman in good health might pay about $70 a month for a $1,000,000 level-term policy over 30 years. A healthy 45-year-old woman purchasing a $1,000,000 policy for 20 years could pay about $90 a month; the monthly premium for a 45-year-old man will be in the vicinity of $120. Comparison shop at selectquote.com, quotesmith.com, termquote.com, masterquote.com, and www.iquote.com.