You may have thought about adding life insurance to your budget. Have you considered why you should…and shouldn’t?
WHEN YOU SHOULD…
The overriding reason for considering life insurance is called:
*Kids.
Children need your support — and so does the partner who’s helping you care for them. If your dependents need your income to support their lifestyle, then you really need to get life insurance. There are resources such the social security survivors benefit, but they may not be enough for your family. You need to sit down and figure out your family’s resources if something happens to you.
*Business interests. Insuring your business partner’s life, with you as the beneficiary, means enough money to not only buy his/her interest out, but pay an equal share of the company’s debts, without having to sell the company to do it. (It makes sense for your partner to do the same, of course.)
*Debts and estate taxes. Can your estate pay off the house mortgage, without having to sell the house to do it? Life insurance can ease your family’s mind on that account, as well as cover funeral expenses and estate taxes. Peace of mind is a valuable thing.
*Decide what kind of insurance you want: whole life or term. Whole life is used as an investment vehicle — but can cost more. Term insurance covers your current needs without a cash-in value. (It also generally costs less.)
*Buy as early as you can — the older you are, the more it costs. It’s easier, as well, to qualify at a younger age than a more mature one.
*Buy while you’re healthy. It’s tougher to qualify with the health problems that come with advancing age. As we get older, we will have more health issues. Even small health issues can cause the insurance premium to increase.
…AND WHEN YOU SHOULDN’T
When does life insurance become a choice, rather than a necessity? Answering the following questions can help clarify things, particularly if your answer is “no” or “none.”
How many family members are depending on you?
Are they legal adults? The younger the child, the more extra funds will help support them while they’re growing. When they can support themselves, then the need for life insurance goes way down.
Are they unable to take care of themselves, for the short or long-term? Do they need additional training or maintenance, to help get back on their feet?
Do you have aims you want to support, even though your estate is limited at present? A policy lets you fund the causes dear to your heart, even after you’re gone.
You’re best off researching all the angles of insurance first before you commit. A good place to start: CNN Money and AARP explain options, and guide you through issues to consider. That way, if you decide on a life insurance policy, you’ll get just what you need at a price you can afford.
The important people in your life may well thank you for it.
Good article and I agree with most points. Only the one about buying early van be disputed – we found that the life insurance we bought when we were young(er) was very over-priced and after almost twenty years of over-paying (this is our financially dumb past) we found much cheaper insurance. It is also about how much the competition in the sector heats.
I think the only time you really don’t need life insurance is if your total estate worth will cover the surviving family members and expenses. For example, my parents have never had life insurance because their investments cover current living expenses for the surviving spouse. But for myself and my husband, we do have life insurance because we don’t have the cash on had to make up for a loss of salary to cover expenses if one of us should kick the bucket. We did get life insurance when we were young (term), but the rates still go up every few years as we age. Eventually, we should have enough net worth to cancel the policy when we’re older.
I would like to caution against permanent life insurance (i.e. whole life, variable universal life). The majority of the premium goes towards the insurance. Especially with whole life. Using life insurance as an investment vehicle, typically, doesn’t bring about the best results. In other words, buy insurance based on need rather than investment option.
The Warrior
NetWorthWarrior.com
We never had much life insurance, since we had a fairly positive net worth since the time our kids were young. And now that we are financially independent, we definitely don’t need any life insurance. But I always recommend it for people that don’t have the wealth to provide for their surviving dependent family (especially with children).
You’re all making some good points. If you think through this — and compare the pros to what applies to your specific situation — then you’ll know if life insurance is for you. Or not.
Thanks for commenting — you’ve just made this post even better.