If you weren't here tomorrow, would anybody be worse off financially than they are today? Would their lives be seriously interrupted because they didn't have the financial resources to support their current lifestyle? Would they have to move or go to work and put off a major expense, like college tuition? If the answer to any of these questions is yes, then you need life insurance.
IMPORTANT NOTE: Guarantees are based on the claims paying ability of the issuing insurance company.
Basically, then, your life insurance needs are defined by your relationships with other people, especially your spouse and dependants.
Single with Dependants
Are you a single parent with children? Are you divorced and feel that your child's other parent cannot or will not provide for your child in the event of your death? Do you have parents who depend on you financially for monthly income? If so, you need life insurance. Your financial professional will be able to ascertain what amount of insurance will be enough to cover the cost of your children's or parents' care and future objectives, such as a college education. Don't rely on the goodwill of others. Life insurance, combined with good estate planning, will ensure that your loved ones have the future income to meet their needs and fulfill their dreams, if you're no longer here.
Single without Dependants
As a general rule, you have no reason to purchase insurance on your life. Unless you have absolutely no savings for a decent burial, life insurance serves no real value for you. Instead of life insurance, make sure you have adequate disability insurance.
If you have bought a cash value policy as a good "forced savings," you can just as easily have money automatically deducted from your checking account and put into a mutual fund. Don't get hung up on the fact that your savings in a life insurance policy grows tax-deferred. There are other ways to save without paying taxes currently. Remember, part of your premium dollars is going to pay for the cost of insurance. And don't worry that, if you don't buy it now, you may not be insurable later. Statistically, your chances of being totally uninsurable are slight, unless you have a family history that would indicate otherwise.
IMPORTANT NOTE: If you're at high risk for a disease or debilitating illness, e.g., AIDS, tuberculosis, muscular dystrophy, among others, you may want to consider purchasing term insurance now if you believe that others will be financially dependent on you in the future.
What if you're healthy now and not at high risk? Even though the price of insurance goes up as you get older and you'll have to pay a little more later, you can hold off on buying for now and put the premiums in other investments, which will be available when you're ready to buy life insurance.
Married with Dependants
If only one spouse is working, make sure you have plenty of life insurance on the working spouse's life. Life insurance on the non-working spouse's life becomes necessary if the surviving family members will suffer financial hardship if the non-working spouse dies. Will there be enough money to provide for day care if necessary? Will you still be able to save for retirement or your child's college education? Your financial professional will be able to determine your insurance needs based on these and other factors.
If both of you are working, make sure you have insurance on both your lives. Have at least enough insurance on each spouse to replace the income that would be lost if either of you died. Remember, it is very costly to raise and educate your children. Once your children are grown and out of the house, your life insurance needs will decrease.
Married without Dependants
If you have a dual income with no children, then life insurance should be considered if you're concerned that either of you would not be able to maintain the same standard of living if one of you should die. If you have one income with no children, make sure you have adequate life insurance on the working spouse's life.
Selecting the right life insurance requires you to master a lot of detail. Start by exploring some of the life insurance myths and misconceptions. You should also understand how Social Security survivor benefits factor into your insurance plans. And you'll want to calculate how much is enough, so that your spouse and dependents will be provided for, but you won't be paying for more life insurance than you need.
There are several types of policies that you should know about. The two main categories are term insurance and cash-value insurance; choosing between them is a matter of deciding whether you just want benefits payable at your death, or you also want to use life insurance as an investment vehicle.
There are three principal types of cash value life insurance:
- whole life insurance
- universal life insurance
- variable universal life insurance
You'll need to understand the differences between these types if you want to use your life insurance as an investment. There are also other types of life insurance, such as single-premium life insurance and packaged products.
Once you've decided on a type of life insurance, it is essential that you understand your policy. This involves reviewing the application and determining policy ownership and your beneficiary, among other things. Generally, it is not a good idea to replace your policy once you've signed up for it, which is why it is so important to make the choice that's right for you.
If you do your homework, shopping for an individual policy does not need to be complicated or confusing. And there are courses of action available to you if you're rated or uninsurable, for example, because of a serious illness or a history of problems with drugs or alcohol.
