If you’re interested in purchasing a life insurance policy to protect your family, you have lots of options in terms of companies and policy types, but another important consideration is how much life insurance coverage you actually need and can afford. Active servicemembers are covered through the military’s SGLI program, which provides a high amount of coverage—up to $500,000—for an extremely low cost. But for veterans and civilians, the cost of such a policy is much higher.
So, if you are considering purchasing private life insurance through a company like American Fidelity Life Insurance Company, how much coverage do you actually need? Is a $50,000 life insurance policy enough for financial security?
Understanding Life Insurance Coverage Amounts
When we talk about a $50,000 life insurance policy, the $50,000 is what’s known as the “face amount” or “coverage amount.” This is also known as the “death benefit” of the life insurance policy.
Death Benefit
The coverage, or death benefit, of a life insurance policy refers to the sum of money paid out to your loved ones if you die while the policy remains active. So, if you die during the course of your active life insurance policy, your beneficiaries—typically, the family members you specify on the policy—will receive a lump sum payout of $50,000 total, which is typically nontaxable income. The death benefit of a life insurance policy can, therefore, bring peace of mind to you and your family.
Premium
In order to keep a life insurance policy active, you (or whoever the policyholder is) need to pay the policy premiums on time. Typically, premiums are paid monthly, but other arrangements can be made.
As long as you make your premium payments, your policy will remain active and the death benefit will remain in force. If you don’t make your premium payments, your policy can lapse or expire, which can compromise the death benefit and leave you and your family exposed.
Life Policy Duration
Policy durations vary by policy type. A term life insurance policy, for instance, will have a fixed-term duration: typically 5, 10, 15, or 20 years. Meanwhile, permanent life insurance policies, such as whole life and universal life insurance, provide lifelong coverage that never expires as long as premium payments are made.
Is 50k Enough for My Loved Ones?
Whether or not $50k is enough for your loved ones depends on a wide variety of factors, life circumstances, and goals. It’s important to understand how a life insurance policy fits into your family’s overall financial plan and lifestyle and to understand the full range of considerations and financial obligations that can fall on your family’s shoulders when you die.
Needs Analysis
A needs analysis is the process of figuring out how much life insurance coverage you need to protect your family. This is something that you can assess on your own by talking to your family, but it can also help to talk to a financial advisor or a life insurance agent to make the most financially responsible decision.
Factors that should be considered when performing a needs analysis include your current and/or anticipated income, whether or not you have dependents such as children or a spouse who depend on you for income, financial obligations and liabilities like mortgage payments and outstanding debts, and more.
A $50,000 life insurance policy is not going to provide your beneficiaries with lifelong replacement of lost income, but it can be helpful for easing some important financial burdens, even if on a temporary basis.
Final Expenses
Final expenses include things like funeral costs, as well as the cost of a coffin, burial plot, cremation, and so forth. These expenses can be quite costly and stressful to plan for on the fly. Having a $50,000 life insurance plan will provide enough of a death benefit to cover funeral expenses and other individual needs, so that your family members have one less thing to worry about should you pass away unexpectedly. These are expenses that most people either don’t spend a lot of time thinking about or don’t want to think about.
Again, this is why life insurance can bring peace of mind: you don’t have to worry as much about these things during your lifetime because you know there’s a plan in place to ease unwanted additional stress.
Time to Grieve
After final expenses are accounted for, there should be enough of the $50,000 remaining to serve as a bit of a cushion to ease some other burdens. It could be enough to pay off some credit card debt, student loan debt, or simply to buy some time for your spouse or other dependents, so that they have time to grieve before immediately having to worry about how to replace the income they depended on you for.
Build Cash Value
In addition to the above purposes for the death benefit of a $50,000 life insurance policy, a permanent life insurance policy—whole life insurance or universal life insurance—will provide an additional living benefit in the form of the cash value of the policy. A permanent insurance policy will also provide permanent coverage, which can be huge for your family’s financial future to remain secure.
The cash value of a permanent insurance policy is closely tied to the premium payments. Because $50,000 in coverage is a relatively low amount, the premiums will be relatively low, which, in turn, means a $50,000 life insurance policy will not have a huge cash value.
However, the favorable interest rate—our current interest rate is 5%—will ensure a modest amount of growth that can provide you with a decent pool of cash value to pull from while you (or the insured) are still alive. This is money that can be withdrawn or borrowed against to help pay for things like car payments, mortgage payments, and more. It can even be used to offset the premiums paid for the policy.
Is a 50k Life Insurance Plan Worth It?
Your family’s financial needs and goals are one piece of the puzzle when deciding whether or not a $50k life insurance policy is worth purchasing, but affordability is obviously another important consideration.
How Much a Month is a $50,000 Life Insurance Policy?
It can be difficult to say for sure how much a month a $50,000 life insurance policy will cost you because it’s not a one-size-fits-all calculation. The cost of any life insurance policy depends on a range of factors including age, gender, medical history, policy type, and policy duration.
The best way to get an accurate quote for a life insurance policy, and to get more guidance on whether or not a $50,000 life insurance policy is a good idea for you and your beneficiaries, is to talk to a life insurance agent.
50k Term Life Insurance
Because term life insurance only comes with a death benefit and no cash value, and because it is only active for a specific period of time, a 50k term life insurance policy will have substantially lower premiums than any 50k permanent life insurance options.
Depending on several factors like age, a 50k life insurance policy can be less than $10/month for younger applicants or closer to a $20-$30/month range. You can use the term life insurance calculator on our website to see what an affordable price for a 50k term life insurance policy would look like for you, and you can even submit an application on the same web page.
50k Permanent Life Insurance
Permanent life insurance policies include whole life insurance and universal life insurance. Both types provide you with lifelong coverage in the form of a death benefit (in this case, $50k), as well as a cash value component.
Because of these additional benefits, and because the cost of premiums will not increase with age throughout the duration of the insured’s life, a 50k permanent life insurance policy will have higher premiums than a term life insurance policy with the same amount of coverage. The cost of a $50k whole or universal life insurance policy will vary widely, but you can expect to pay closer to $100/month or more.
How Much Can I Borrow from a 50k Life Insurance Policy?
Rules for borrowing against life insurance policies for loans vary depending on the policy type and the rules of the insurer, so it is best to talk to an agent about this as well. However, one thing that’s important to note is that you are borrowing against the cash value of the policy, not the death benefit. So, you are not borrowing against $50,000, but rather the amount of cash value you have accumulated which could be more or less than $50k.
Combining Term and Permanent Life Insurance
After performing your needs analysis and talking to an agent or advisor, you might decide you need more than $50,000 in coverage to protect your family, but cannot afford to purchase a permanent policy with more coverage than that. In such cases, it is common and simple enough to purchase a $50k permanent life policy and an additional term life policy on top of that to increase your total coverage.
In so doing, you guarantee some amount of coverage for you and your family for the rest of your life, along with the benefits of cash value accumulation, while also setting yourself up with an affordable policy with additional coverage for a fixed term to get you through financially vulnerable periods of time with an added layer of security to protect your family.
