I hope to use Thursday's posts to talk about personal finance issues. Up first is the misunderstood world of life insurance. I'm assuming you already know that most people need it. I can attest personally to its importance as my dad died when I was in college, and if not for life insurance, I never would have finished college, and my mom, brother and myself would have struggled financially for sometime afterward.
Who needs life insurance?
Anyone who would inconvenience a loved one financially if they die. If you own a home, have kids, are married, or have a lot of non-student load debt, you probably need life insurance. Students and other young people don't necessarily need it, but if they can afford it, it is a good way to guarentee coverage against some future uninsurability.
How much coverage should you have?
A good rule of thumb is 7-10 your annual income, but much there are several calulators that will better estimate what you need (here and here). At a minimum, I would recommend enough to cover burial expenses, and 2-3 years of income replacement for your family. Ideally though, you want to pay all debts and provide several years of income replacement, possibly even funding retirement for your spouse, or paying for college for your kids. I am single without kids and I have enough coverage to pay off my house, pay off my debt, and give both my mom and my brother a nice inheritance should I die. Of course, how much coverage you get will be based upon how much you can afford to spend and your ability to qualify for coverage.
What type of coverage should I get?
In general, term insurance will be the most affordable for the majority of people, but there are some instances where permanent insurance is useful.
I will explain more about the types of coverage and how you go about purchasing it, in the next post on the subject.
What are your thoughts on life insurance? Post your comments below.
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2 comments:
Agree with your distinctions on who needs life insurance and who doesn't. I suspect many people insist upon having it but don't have anything tangible to protect. For those people, in the aggregate, they'd be better off investing those cumulative premiums in their personal livelihoods.
Actually based upon my experience, most people are under-insured or insist on NOT having life insurance coverage. AND they do not invest that extra money they have, they spend it.
The case for getting it when your younger is that you can lock in coverage while you are healthy and can get better rates. Once people start to become overweight, on meds, and with some health conditions, you may be uninsurable or only qualify for high rates. Sure you might be able to come out better by investing, but insurance is just that, protecting against the unexpected.
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