What a $500,000 Life Insurance Policy Costs, and Who Should Have One

September is Life Insurance Awareness Month. It's been around since 2004, and every year it brings a wave of ads about protecting your loved ones that never get around to saying what it costs or who needs it.

Most people who sit down with me already know they probably should have some. What's kept them from doing it is usually one of three things. They think it's expensive. They think the policy at work has it covered. Or they'd rather not think about it at all.

For a healthy nonsmoker in their 30s, a $500,000, 20-year term policy usually runs $25 to $40 a month. In your 40s it's roughly double. If you smoke, figure two to three times the nonsmoker rate. Smoking moves the rate more than anything else on the application, and most people don't think of it as an insurance cost.

Those are ballpark numbers. Companies rate health very differently from each other, which is the whole reason I quote several of them instead of one.

• Anybody with someone depending on their paycheck. A spouse, kids, a parent you help out.
• Anybody whose name is on a mortgage with someone else.
• Business partners, especially if you'd have to buy out the other one's family.
• A stay-at-home parent. If something happened to them you'd be paying for childcare and a lot else, and almost nobody insures that.

A single 25-year-old with no debt and nobody depending on them can probably wait. Locking in a cheap rate while you're healthy isn't a bad idea, but it isn't urgent.

The old rule of thumb is ten times your income. That's fine to start from, but I wouldn't stop there. What I do with people is add up four things: what they owe, how many years of income the family would need replaced, the mortgage balance, and what they'd want set aside for the kids' school.

For a lot of families around here that comes out somewhere between $500,000 and a million. It sounds like a huge number until you spread it over the eighteen years until the youngest is out of the house.

Group life through your employer is a good thing to have. It's also usually one or two times your salary, it goes away when you leave the job, and it ends when you retire. It's a good start. I wouldn't count on it as the whole thing.

Term is straight coverage for a set stretch of time, 10, 20, or 30 years, and it's cheap. It's what most families need.

Whole life and universal life are permanent, they build cash value, and they cost five to ten times as much for the same death benefit. They have their uses. Estate planning, a child with special needs, a buy-sell agreement between business partners, final expenses later in life. I'd rather get the amount right first and argue about term versus whole life after.

The nurse-comes-to-your-kitchen exam still exists, but a lot of companies now do what they call accelerated underwriting. You answer health questions online, they check prescription and medical records, and you usually have an answer in a few days. For healthy people it's often no exam at all, up to around a million dollars. If the exam was what put you off, ask me. A lot of the time there isn't one anymore.

Want a number for your situation instead of a ballpark? Call the Point Pleasant office or take a look at our life insurance and annuity page. I'll need about ten minutes and a few questions.

This is general information, not specific advice for your situation. Every policy is different.