I’m currently 40, and my existing 20-year term policy for $250,000 will expire at age 53. I also have about $100,000 in coverage through my employer, which I would lose if I switched jobs.
My partner is disabled, unable to work, and we have no children or other dependents. My insurance agent gave me a quote for an additional 30-year, $250,000 term life policy but it costs 2.5 times my current premium. How do I determine how much life insurance I need?
-Randy
You seem to be putting this in the right context. The primary purpose of life insurance is to provide for the people who depend on you in the event that you die. It sounds like, in your case, your partner is the main focus.
Ask yourself how much money your partner would need to afford the lifestyle they want if you were no longer here.
The answer to that question is two-fold. First, determine the lifestyle you’d want them to have after your death. Then, estimate the dollar figure that would provide for that lifestyle. (And if you need help selecting a life insurance policy, consider working with a financial advisor.)
What Kind of Lifestyle Will Your Partner Have?
You and your partner need to talk about how they would plan to live if you aren’t around. That plan may include making major lifestyle changes such as moving closer to family. Or it may involve just a few minor changes such as hiring someone to help clean occasionally. The point here is to define your partner’s needs before you jump into the numbers.
Make sure you consider any adaptations your partner would need in your absence. If you do things like bathe them, shop for groceries or handle other basic necessities, think about how they would fill those same needs without you. (And if you need help jumpstarting this conversation, talk with a financial advisor.)
Estimate Your Partner’s Expenses
After identifying your partner’s needs, you can start tallying up the cost of their lifestyle. Adding up these expenses will help you determine how large of a life insurance death benefit you’ll need. After all, your life insurance policy is what will help support your partner.
If your partner is going to require additional professional care, get some estimated costs of those services. Maybe you want to pay off the house, so they don’t have to worry about it? If so, include any remaining mortgage balance in your policy figure. Don’t forget burial expenses, too.
Since your partner is unable to work, they’ll likely need to replace your income or at least a portion of it. I also suggest talking to a financial advisor to properly understand how your partner’s tax situation might change in the event of your death.
