Short answer: probably. If something happens to you, your loved ones don’t just lose you—they also lose the financial future you’ve been building. Without life insurance, the people that depend on you may be left struggling financially if you passed. If you provide financial or caregiving support to someone, it’s important to make sure they would be taken care of if they lost you.
Personal finance experts recommend that you have savings and/or coverage that is at least ten times your annual salary. If you have already built up enough savings to provide that safety net on your own, then you may not need term life insurance. If not, getting term life insurance can help protect your family’s future.
Most of our customers are one or more of the following:
- Parents: According to the USDA, it costs about $234K to raise a child to adulthood, not including college tuition. A life insurance policy ensures financial security for your family.
- Homeowners: A mortgage is likely the largest debt you will ever take on, and you don’t want to leave your cosigner stuck with it. Homeowners should consider a life insurance policy that lasts the same length as your mortgage term.
- Partners: You’d do anything for your partner, which means ensuring they are taken care of if you die unexpectedly. Be sure to take into account any shared debt, expenses, and future financial plans.
- Students: Your debt doesn’t disappear when you die. If you had a private student loan, your parents or other cosigners may be on the hook for your debt if you pass away.
- Business owners: It’s not just your family that depends on you when you own your own business. Ensuring your business can still run even after you're gone is a smart move.
It’s different for everyone. In general, you can find your ideal coverage amount by calculating your long-term financial obligations and then subtracting your assets. The remainder is the gap that life insurance needs to fill. It can be difficult to know what to include in your calculations, so we created a term life insurance calculator to help you determine your coverage needs.
There also are a few rules of thumb that can help guide you. One easy way is to simply multiply your annual income by 10. You can also use the DIME formula as a starting point in calculating your life insurance needs. DIME is an acronym for Debt, Income, Mortgage and Education.
- Debt: Total monetary value of all debt (student loans, credit cards, car loans, etc.) You’ll likely want to include your anticipated funeral expenses here.
- Income: Take your annual income and multiply it by the number of years your family will need the support (i.e until your youngest child reaches a predetermined age, such as 18, 21, or 25). For example, if you make $50,000 per year after taxes and your youngest child is 10, and you want income protection until he or she is 21, then the income formula would be $50,000 x 11 years = $550,000. If you’re a stay-at-home parent, include the cost to replace the services that you provide, such as child care.
- Mortgage: Having enough life insurance can help keep your family in your home. With this step, simply add up the remaining balance on your mortgage. If you are renting, consider adding 10 years of rent income to your plan as a substitute.
- Education: Estimate the cost of sending your children to college or private school. It is common to estimate $100,000 per child for a four-year university education at a state school. That includes tuition fees, room and board, and books.
Employer-sponsored life insurance is a great benefit, but it may not provide enough coverage to protect your family. Most employer-sponsored policies offer coverage that is 1 to 2 times your annual salary. So if you make $50,000 per year, your employer may offer $100,000 in life insurance coverage at very little cost to you. While this is helpful, you may need much more coverage to support your family. Many financial experts recommend that you have coverage that is actually 10 to 12 times more than your annual salary, or enough to replace your income for X years to help pay for expenses or services you used to provide, like living expenses, child care, college expenses, bills, and mortgage payments.
Another disadvantage to relying on employer-sponsored coverage is that most policies through work only last as long as you are employed there. Many people tend to lose their insurance coverage when they change jobs, are laid off, or when they retire. Have you thought about owning coverage outside of your employer-sponsored coverage?
You might consider supplementing your employer-sponsored life insurance with a policy from Ethos—so you get the full coverage you need to protect your family when they need it the most.
In most cases, the death benefit is not taxed. That said, if you are doing something less common like distributing the death benefit in installments while investing it, or including the benefit as part of an estate, there may be tax penalties for the beneficiary. Make sure to check with an accountant or financial advisor if you think this may apply to you.
Life insurance is a way of helping your family cope financially when you die. The payout can be used to help your loved ones with everyday expenses when they can't rely on your salary or income any longer. So the question of what life insurance covers can be answered two ways: the expenses it covers, and the types of death it covers.
- Expenses covered by life insurance
- Typically, life insurance policy proceeds are used to help cover expenses like home mortgages, funeral expenses, children’s college tuition, existing debt, child care or dependent care, medical bills, living expenses, cosigned debt, or any other expenses your loved ones may have. However, it’s ultimately up to your beneficiary (or beneficiaries) to decide how to use the policy proceeds.
- Types of death covered by life insurance
- While each policy can be a little different, most life insurance policies cover deaths caused by accidents and natural illnesses. The majority of policies will not pay policy proceeds for a death resulting from suicide during the first two policy years. Also excluded are policies where statements have been falsified by the applicant as described in the incontestability provision of the policy (meaning they lied on the application). The incontestability period is regulated by state, but the typical timeframe is 2 years. Policy proceeds will not be paid if insurance fraud has been committed. Some policies may have additional limitations or exclusions related to the benefits paid, like death as a result of war, aviation, or certain avocation (policies administered by Ethos do not include these additional exclusions). Refer to your policy or ask your carrier if you have questions regarding limitations or exclusions specific to your policy.
- What does a policy administered by Ethos cover? When would claims not be paid?
- Policy proceeds will be paid to your beneficiary at the time of claim if you have died for any reason except the following:
- It has been determined that insurance fraud has been committed,
- Questions within the application were not answered truthfully and are discovered during the two year contestable period, or
- Your death is the result of suicide during the first two years of the policy being in force.
- Policy proceeds will be paid to your beneficiary at the time of claim if you have died for any reason except the following:
A death benefit is the amount of money that an insurer pays to your beneficiary if you pass away during the policy term. Typically, it is paid in a single lump sum and is untaxed.
A beneficiary is the person, will, or trust designated as the recipient of the policy proceeds after the death of the insured and a claim is made on the life insurance policy. You, as the policy owner, can decide who to designate as your beneficiary (or beneficiaries).
A life insurance policy is a contract between you and an insurance company. In that contract, you agree to make payments (premiums) to the insurance company for a specified period of time, and the insurance company agrees to provide a lump-sum payout (referred to as the “death benefit”) in the event that you pass away while the policy is in force. The contract is legally binding and government-regulated. The payout, referred to as the “policy proceeds,” is typically the death benefit which can be adjusted depending on premiums, interest, and any possible policy debt, withdrawals or partial surrenders.
A premium is the price you pay to the life insurance company to secure your coverage amount. It can be paid monthly, quarterly, twice a year, or annually—depending on your preference. If you continue to make premium payments, the insurance company must meet their obligation to provide your beneficiaries with the stated benefit in the event of your passing.
A beneficiary is a person (or persons) who will receive the proceeds of the life insurance policy if the insured dies. You can name one person or multiple people as beneficiaries to receive the policy proceeds.
You are not locked into a life insurance policy, and can typically end coverage by ceasing to pay the premiums or requesting that the policy be terminated.
A rider is a document that becomes a part of a life insurance policy, which can provide additional coverage or benefits.
Does the policy I apply for with Ethos include any riders?
- Yes, the policy includes the following:
- Accelerated Death Benefit: this rider provides the insured with the ability to access a portion of the policy proceeds while still living in the event the insured has been diagnosed with a terminal illness. The amount received by the insured can be used to assist with medical bills or any other purpose as determined by the insured. At the time of the insured’s death, the policy proceeds will be reduced as a result of the death benefit acceleration. Refer to the rider for details.
Term life insurance can be a simple and affordable option if you need life insurance coverage. It provides coverage for a set period of time or “term” (typically 10–30 years), and is designed to protect your dependents. If you pass away during the term period, your beneficiaries receive a lump-sum payment (referred to as the “death benefit”) which can be used to cover expenses or income loss related to your passing. You select a term based on how many years you need protection. For example, someone who wants to protect an income until retirement or while paying off a home mortgage may select coverage for a term that will take them into retirement or for the term of the mortgage (a 30 year mortgage could be protected with a 30 year term policy). You select the coverage amount based on the financial impact your death could have (if you died tomorrow, how much money would your family need over the years to cover what you would have contributed if you were there). Continuing the mortgage example, the amount of coverage should be at least enough to cover the balance of the mortgage.
You pay a monthly premium for the term to keep the policy in place (similar to car insurance or a subscription). With a term life insurance policy administered by Ethos, your monthly premium will stay the same over the entire duration of the term. If you were to pass away during the term, whoever you designate as a beneficiary will receive a lump-sum payment for the policy proceeds, subject to the suicide and contestability provisions of the policy. What this means is that your family is guaranteed to receive the policy proceeds if you die for any reason after the policy has been in force for two years. If you die within the first two years of the policy as a result of suicide or if parts of the application were not answered truthfully, policy proceeds will not be paid.
At the conclusion of the policy’s term length, you can either elect to let your life insurance coverage end or have coverage continue as provided under the guaranteed renewability feature. This means you are guaranteed the option to renew a reduced amount of coverage (up until the age of 95) without having to go through underwriting (i.e no exams). If you do choose to renew at the expiration of the initial term, premiums will be recalculated at a much higher rate based on your age at the time of renewal. That’s why you should consider buying the right amount of life insurance coverage from the start, or purchasing another smaller policy when your needs change. If you choose not to renew coverage, the policy is no longer in force and insurance coverage is no longer provided. If you were to pass away after the end of the term or renewal period, no term life insurance benefits will be paid.
Underwriting is the process of conducting research and assessing the degree of risk for each applicant before the carrier takes on that risk. This process helps to set fair premiums to adequitely cover the true cost of insuring policyholders.
There’s no one-size-fits-all length. It's recommended to choose a term length that covers your family for the number of years they depend on you. When it comes to determining your term length, you may want a term that covers your family until:
- You retire
- Your children are grown and are no longer dependents
- Your mortgage is paid off
- You reach your savings goals
There are two main types of life insurance: term life insurance, and permanent life insurance.
Term life insurance is the most simple and affordable option. It provides coverage for a set period of time or “term,” typically 10–30 years, and is designed to protect your dependents. If you pass away during the term period, your beneficiaries will receive a lump-sum payment of the policy proceeds.
Permanent life insurance can be more complex and costly (sometimes 10-15 times more expensive than term life insurance). It can provide coverage for a fixed or variable amount, typically for your entire life. Some permanent life insurance policies let you access cash value with a policy loan, a withdrawal, or a partial surrender from the policy. Withdrawals, partial surrenders, and outstanding loans, will usually reduce the amount paid to beneficiaries.
At Ethos, our goal is to insure and protect as many families as possible. Offering term life insurance lets us do so in a way that is simple and affordable, protecting families during a time when they need it most. Term life insurance might be right for you, particularly if:
- You need coverage to replace your income over a fixed period of time (like when you’re raising children or paying off a mortgage)
- You want the most affordable coverage which provides insurance for a specific period of time (like while you are working and saving for retirement)
- You want a streamlined and straightforward process to quickly provide your family with protection when they need it most (like while you are a wage earner, covering household expenses)
Life insurance rates increase as you age, so the sooner you get it, the lower your premium will likely be. Applying soon means you can lock in your lowest rate. Owning life insurance is important if you have just purchased a home and need to cover the mortgage, if you've recently had a baby or have plans to in the future, or if you would like to provide income replacement for your family in the event of your untimely death.