How do I evaluate my life insurance needs? How much life insurance do I really need?

Ralph Estep Jr.:
00:00

Do you feel like you're swimming in a sea of confusion when it comes to life insurance? How much do you really need? What's the difference between term and whole life? Which type is better for you? Well, stay tuned as we dive into these questions and more coming up on the next Ask Ralph Show.

Ralph Estep Jr.:
00:16

Welcome to another episode of Ask Ralph, the show where we tackle your personal financial questions from a Christian perspective. I'm your host, Ralph, and I'm so glad you chose to spend part of your day with me today. Before we jump into today's topic, I want to remind you all, we absolutely love hearing from you. Your questions truly drive the show. So if you're grappling with a financial issue or just looking for Godly guidance around your money, go to askralphpodcast.com and reach out to us.

Ralph Estep Jr.:
00:48

Just click on that microphone icon, and you can record your questions, or you can simply send us a note. I'd love to feature your question on an upcoming episode. Okay, well now on today's topic, and that's life insurance. This is an area shrouded in mystery for a lot of us. How much do we need? What type should we get? Does the coverage last forever or does it expire? And what does it really cover in the end? We're going to break it all down today and walk through the key considerations around life insurance, all through the lens of our Christian faith.

Ralph Estep Jr.:
01:23

I want to open our conversation today with Proverbs 13: 22, which says this. "A good man leaves an inheritance to his children's children." Think about that. As Christians, it's so important that we're not focused on our immediate needs, but that we're planning ahead for the financial wellbeing of our families. Not just our children, but our grandchildren and maybe beyond. Of course, life insurance is not the only piece of that planning, but it can be an important element. With the Lord's guidance, we can make wise choices about life insurance to protect our families for generations to come.

Ralph Estep Jr.:
02:03

So let's start with a listener's email. "Ralph, my husband and I have a one-year-old son, and we want to make sure he's provided for if something ever happened to us. But life insurance is so very confusing. How much do we need? And what type of policy is best? Should we get term or whole life? Please help us figure this out. We want to honor God by taking care of our son, but we also have to be wise with the money He's entrusted to us. Thank you for any advice you can provide. Sincerely signed, Confused in Columbus.

Ralph Estep Jr.:
02:41

Confused in Columbus, thank you much for reaching out. You raise really important questions that I know a lot of parents grapple with. My wife and I had the same thoughts when our kids were young. So let's break this down step-by-step.

Ralph Estep Jr.:
02:55

First, how much life insurance do you need? The general guideline is that you want to have enough to cover 10 to 12 times your annual income. I know that sounds like a lot. This amount should sufficiently provide for your family's ongoing living expenses, maybe cover mortgage payments, provide for college savings, and meet those other needs. And of course, every situation is unique, so we also have to consider any other assets you currently have.

Ralph Estep Jr.:
03:20

Maybe your lifestyle, number of kids, if you have special needs, and what stage of life you're in. So it's important that you work with a financial advisor to land on the right amount for your family. Now, in terms of the type of life insurance, you essentially have two options: Term and Whole Life.

Ralph Estep Jr.:
03:37

Term policies provide coverage for a defined period, usually 10 to 30 years. Your premiums remain steady during that term, then the policy expires unless you renew it. Whole life, or what they call permanent life insurance covers you for your entire life, whenever you decide to pass away. I guess you really don't make that decision, but whenever you do pass away.

Ralph Estep Jr.:
04:00

The premiums are more expensive, but it does accrue cash value that you can tap into if needed. So I generally recommend term life insurance for most young families, quite frankly, because it's more affordable. You can get a 20-to-30-year term policy that covers you during your high earning working years and while the kids are young. As they get older and you've built other assets, you may not need as much insurance.

Ralph Estep Jr.:
04:24

Now as a comparison to that, whole life tends to make more sense for high-net-worth individuals as part of an advanced estate planning tool. But here's the most important thing. Is that you have a policy in place if the unthinkable occurs. Shop around, talk to a financial advisor, and pick a term amount and duration that fits your family's unique situation.

Ralph Estep Jr.:
04:46

But this isn't a time to delay. Get that covered set up to give yourselves peace of mind. I've seen way too many situations where people have put this off and it led to some really tough times when someone passed away unexpectedly. So, I hope this gives you a good starting point, Confused in Columbus. Let me know if you have any other questions once you start meeting with insurance agents. Ralph's wishing you wisdom and discernment as you make this important decision for your family.

Ralph Estep Jr.:
05:13

All right. Well, let's get a little deeper into the key considerations around life insurance. Kind of talked about a little of this, but let's get a little deeper. You may ask, "Ralph, why is life insurance important?" That's a great question. It provides essential financial support to your family if you pass away while dependents are still relying on your income. It pays off debts like mortgages, maybe auto loans or other loans, credit cards so your family's not burdened if you unexpectedly pass away.

Ralph Estep Jr.:
05:42

It could also fund college savings for your kids, perhaps it'll cover your final expenses without draining other assets. Just think about, if you passed away what a burden that will be if you're not prepared. It allows your spouse to maintain the current lifestyle without your income. And finally, gives peace of mind knowing your family's taken care of.

Ralph Estep Jr.:
06:04

So the next question is this, "Ralph, how much life insurance do I need?" And as I said earlier, I would aim for 10 to 12 times your annual income as a baseline. So if you have $50,000 in income, you're going to want between $500,000 and $600,000 of insurance. You're also going to need to factor in your family's ongoing living expenses. If you live pretty frugally, you might be on to get on the lower end. If you tend to have a more exorbitant life, you might need more.

Ralph Estep Jr.:
06:29

You also have to consider your current assets, what you own. Look at your debts and liabilities and more important to look at the number of dependents you're supporting. This is time to think through specific needs, like college savings, maybe you have special needs children, and maybe you have some special needs yourself. Or maybe you care for elderly parents. And this is critical. Work with a financial advisor to determine the right amount for your specific situation. Everybody's different.

Ralph Estep Jr.:
06:59

You also need to understand that you can decrease the insurance over time as your income decreases. Maybe kids are grown, or you start to accumulate assets. So let's answer this basic question. "What's the difference between term and whole life insurance?" Well, let's start with term. It provides coverage for set timeframes, usually 10 to 30 years. As we said, the premiums remain steady, then the policy expires unless you renew it. It's generally best for covering needs only during your working years. It generally offers more affordable premiums compared to those whole life policies.

Ralph Estep Jr.:
07:34

And of course the other type is whole life. We talked about that. It covers you for your entire life whenever you pass away. The premiums are more expensive because it builds cash value that you can tap in and borrow against. It sort of functions as a forced savings account plus life insurance. But, like I said, it's generally better for estate planning for high-net-worth individuals.

Ralph Estep Jr.:
07:55

So the bottom-line question is "Ralph, which is right for me?" Here's my answer to that. Term is best for most young families. That's what my wife and I bought. It provides sufficient coverage at a lower cost, and you can always convert it to a whole policy later if you desire. And like I said before, whole life is better for advanced estate planning. So you might say "Ralph, I'm sold. I'm getting insurance. I've listened in to you. Where do I buy life insurance?"

Ralph Estep Jr.:
08:22

Well, the first thing you want to do is check with your employer. Many offer group policies at a much lower cost than what you'd buy in the market. If that's not an option, then shop with independent life insurance brokers. Get quotes from several high rated insurance companies. And in that, you want to look for A-rated carriers with strong financials. The worst thing you want to do is find the cheapest policy with a bad carrier that maybe they go bankrupt. And for all those years, maybe you're paying into that term and it goes away.

Ralph Estep Jr.:
08:51

Now, term prices will range from $30 to $100 per month for a $1 million policy. So in summary, make sure you have life insurance in place, my friends, to cover your family's needs today. As I said, aim for 10 to 12 times your income, work with a broker advisor to lock in the right policy for you and your situation, and as always, ask the Lord for wisdom and discernment as you make this important decision. Your family's counting on you. So get this taken care of today.

Ralph Estep Jr.:
09:24

Well, let's recap what we covered today. We discovered why life insurance is so important to protect your loved ones. We walked through how to calculate the right amount for your unique situation. We compared term versus whole life policies. And we talked about where to shop for the best rates and coverage.

Ralph Estep Jr.:
09:40

So please visit askralphpodcast.com and join our email list if you found this helpful. When you do, you'll get a free copy of my book. This is it right here. “Mastering Your Finances,” which goes deeper on all things money and faith. If you have any other questions, don't hesitate to reach out. I'm here to help. That's what Ask Ralph's all about.

Ralph Estep Jr.:
10:05

Well, that wraps up today's show on insurance. Hope you feel empowered to make the best decisions for protecting your family. Tune in tomorrow when we tackle the topic of comparison and jealousy. It's going to be our Sunday Show where we talk about how to find contentment in Christ instead of coveting what others have. It's a challenging, but important question. So until then, stay financially savvy and God bless you.