Life Insurance

I recently heard yet another story of a family's tragedy being compounded due to lack of life insurance coverage. In this terrible story, a father committed suicide, leaving his wife and son without a policy and piled high with debt. I don't want to get into a post about the morality of suicide, but I do want to use this example to highlight the importance of insurances in a several part series. Today's post is on life insurance.

A LMF4HMW reader may or may not have a need for life insurance depending on the stage of life she's enjoying. When I was single, without children and had no debt, I had no need for life insurance. (My 401(k) assets would have covered my debts and funeral costs.) Since I am now married (still no kids) and contributing to a household, I should consider a life insurance policy if my husband would suffer financially should I pass (i.e., his income alone wouldn't cover the mortgage, etc.). At this point it still doesn't make sense for us, but every situation is different.

The time to truly consider life insurance is when a family welcomes a child so that should the unthinkable happen, there are ample funds available. (There are exceptions if a significant amount of wealth has already been accumulated -- i.e., the child has a trust fund, but for most people that's sadly not the case!) Another case would be having a dependent who isn't a child such as a sibling or parent. There are a multitude of myths surrounding life insurance, one being that you "should get life insurance while you're young" since it's less expensive. While the statement is technically true, on this note I would have paid into a policy for the past 10 years which would have easily rendered any savings in my 30's moot.

There are two basic types of life insurance, whole and term. Whole is a combination of insurance plus an investment. Upon the death of the holder, the contract will pay the stated amount. The investment portion may be borrowed against or used in other ways. Term life insurance has a duration limit on the policy period and pays the amount unless it first expires. Some term policies will let you renew. The key with all types is to evaluate your particular situation and needs -- here's a good starter article.

Many insurance purveyors will try to sell you whole policy stating that having an investment plus insurance policy is a better benefit. The truth is that these are much more expensive policies and that insurance needs change over time. The key is buying what you need - not what someone is trying to sell you. For most people, term life insurance is all that is needed.

Dave Ramsey, a bright and straight-talking radio show host, has a website recommending endorsed local providers. Check it out and call someone this week to discuss your needs:
http://www.daveramsey.com/sa/insurance/

Next we'll cover disability insurance.