Life Insurance

One for the Money, a guide to family finance by Elder Marvin J. Ashton, recommends appropriately involving yourself in an insurance program. “It is most important to have sufficient medical, automobile, and homeowner’s insurance and an adequate life insurance program. Costs associated with illness, accident, and death may be so large that uninsured families can be financially burdened for many years.”


Since most of us are required by stipulations on loans and current laws to have homeowners and automobile insurance, we will focus on life insurance in this issue.

Why do I need life insurance?
Life insurance will not benefit you, but is a protection for your family and those that depend on your income or skills. Death is enough of a stress itself, you don’t want to leave your family and dependants wondering how they are going to survive. Don’t forget to insure those that may not be bringing home a paycheck but if something were to happen to them expenses would go up. For example, if the stay-at-home parent were to pass away, your expenses would increase to pay for child-care, cleaning, etc.

How much life insurance do I need?
All this depends on how much money you are currently making and spending and what you would want to use the life insurance for. To make an informed decision, discuss the future needs of your dependents and what your goals for the life insurance money would be. For example: consider funeral expenses, child care costs, whether you would want to pay off your house and other debts and a college education or mission for your children and how much it would cost to provide comfortably for those left behind. It might be helpful to talk to a financial advisor that can help you determine the right amount for your family. Some very general recommendations are 6-20 times your annual spending or about 10 times your income.

You may have access to life insurance through your employment, bank, credit union, etc. Sometimes this is a very affordable way to get life insurance, but be informed about all the conditions with this policy. Many policies through work are only available as long as you are working for that company, so you don’t want that to be your sole source of life insurance.

What type of life insurance should I get?
This is an ongoing debate: term or permanent life insurance. There are many different philosophies on this. What it boils down to is what your goals are, what you can afford and what works best for the needs of your family.

Term insurance is the most affordable insurance available. However, unlike permanent life insurance, it does not build any cash value. It will only benefit you if you pass away during the term of the insurance (anywhere from 5-30 years). It is truly just a protection plan for your dependents. When purchasing term, decide how long you anticipate needing it for, because the older you get, the more you will be paying for insurance.

Permanent insurance or cash value insurance is essentially term insurance combined with a forced savings plan. It is significantly more expensive than term insurance (5-10 times more) and takes a few years for the cash value to build (the first few years premiums are paying for the insurance portion). You can access the cash in your policies, if needed, for retirement and other financial needs but that will take away from the ‘death benefit’ available for your survivors. There are many varieties of permanent insurance available, so if this is of interest to you, talk to a professional or spend some quality time researching your options.

Many financial experts recommend ‘buying term and investing the difference’. You have more flexibility and control over your money and may get a better return by investing and saving elsewhere than you do by saving through a life insurance policy.

Things to keep in mind when buying life insurance:
· Make a Plan – Decide what you use the life insurance money for and how much you need
· Do Your Research – Decide what type of insurance you want and research the company you are considering (you can find ratings for companies online)
· Find Someone You Trust – If you are going through an agent, ask for recommendations from friends and family. Find someone who has been in the business for a while, knows what they are doing and you can trust.
· Just Do It – Don’t put it off. Life insurance is planning for the unexpected and you never know when you will need it.


Additional resources:
Smart Couples Finish Rich. Bach, David (pgs.162-170).



MSN Money
The Raging Debate Over Term vs. Whole Life
5 Life Insurance Blunders to Avoid
Your 5-minute Guide to Life Insurance
http://articles.moneycentral.msn.com/Insurance/InsureYourLife/InsureYourLife.aspx


Check Life Insurance Company’s Ratings http://www.insure.com/articles/interactivetools/ratingslookuptool/sandp/newtool1.jsp