Life insurance is an investment in your family. It accepts money from you in exchange for a promise to pay your beneficiaries (people you designate) an agreed-upon amount when you pass away. People can buy life insurance, and many employers will purchase employee policies.
Term Life Insurance versus Whole Life Insurance
The two basic types of life insurance are term life insurance and whole life insurance. Term life insurance is taken for a set period (typically 10 to 30 years.) If you live longer than the length of your term policy, you won’t receive any payout.
A whole life insurance policy requires you to continue paying premiums for your entire life. The payout amount is set at the beginning of the policy, and that amount will help determine your premium. The person who buys the policy can also contribute more money to the policy, increasing the payout amount given to your beneficiary.
Calculation of Policy Amount
When considering the size of your life insurance policy, the amount you need depends on the financial challenges your death will cause the beneficiary. For instance, the breadwinner of a family would want their spouse and children to have enough money to meet expenses after their death. On the other hand, a business co-owner would wish to provide for their family and management of the company.
The DIME Method of Policy Calculation
According to Bankrate, the previous standard way of calculating the amount of life insurance was to multiply your annual salary by ten. However, this formula has proved problematic. One popular way to calculate life insurance is using the DIME Rule. The letters in DIME stand for Debts, Income, Mortgage, and Education.
When using the DIME method:
- Debts refer to money you believe may be owed to creditors at your death.
- The Income used for this calculation is an estimate of how much money your family will need to replace your pay after you die.
- If your home still has a Mortgage, you should include enough money to complete the home purchase.
- As for Education, this refers to money you would like to leave so someone in the family can go to college or training school.
Some agents recommend a method called Shortfall Calculation. This method takes the money you believe your family will need to survive for years. You would then take that number and subtract all other sources of income your family can expect during that time. The result of that calculation is the amount of insurance to buy.
Employee Life Insurance
Most modern companies today provide life insurance for their employees. This is typically done as part of the employees’ employee benefit package. According to Trustage, the median coverage as of 2022 for employees is $20,000 – or one year’s salary. Although this can be a significant asset for people who remain in one job for an extended period, people who change jobs frequently won’t typically stay long enough to benefit from these policies.
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If you are a business owner, we can also provide information about NYC employee insurance agencies. Our agency has experience calculating the right amount of insurance for your employee benefits plan. We can give you a choice of 200 insurance companies to find the policy that best fits your company’s needs. Call us for an appointment today to discuss your NYC employee insurance options.
If you live in the New York City area and have questions about life insurance, we invite you to talk with one of our agents at Margolis Associates. We will work with you to calculate how much insurance to buy and which type of policy would suit your needs. We pride ourselves on our years of dedication and service and would like to calculate your life insurance needs. Contact us for an appointment today and let us be your NYC life insurance agency.