Tuesday, March 18, 2014

Life Insurance

Had an interesting discussion with some friends today on the need (or not) for life insurance.

My views:
  1. Term life insurance IS pure life insurance.  Whole Life Insurance and Universal Life Insurance are a combination of life insurance and an investment.  If you want to protect your loved ones from the consequences of your demise, get term life, it does what you need for the interval you need it, and it costs the least.
  2. You only need life insurance when you have dependents who rely on you for their care.  Husbands and wives should both have insurance as even if one of you takes care of the kids and does not draw a salary, it will be a hardship for your family if you are not around.
  3. Due to US tax and estate laws, the insurance on your life should be owned by your partner (spouse).  Talk to a tax or estate planning professional for the reasons why - it involves the settling and taxation of your estate if you die.
  4. Life insurance through your work is okay but not ideal.  If you lose your job, your life insurance usually goes away.  If you have developed a chronic disease, it may be hard to get life insurance after you lose the job.  You can buy your own life insurance privately, and not buy the life insurance through work and it is not tied to your employment.
  5. It is generally best to get a term that lines up with when your last child finishes University, or reaches an age where they will be independent.  Your goal is to protect your children until they are independent and also to protect your partner until you have built up sufficient retirement savings.  Once you have sufficient retirement savings and your children are through school, you may not need insurance since your partner will be able to live on your savings if you die.
  6. The earlier you buy the insurance, say shortly after your first child is born, the better.  You will get a lower rate and you are more likely to be healthy and not be denied insurance.
  7. Use the Internet to get the best rates, there are a lot of websites that can give you competitive quotes on term life insurance.  For example, I ran a scenario for a 37 year old overweight non-smoker wanting $1M in insurance and the range of prices was $515 to $720 per year.

1 comment:

  1. Some good points especially on life insurance through your employer But the STATEMENT "if you want to protect your loved ones from the consequences of your demise, get term life, it does what you need and it costs the least" is a a bit of a blanket statement. There is a lot to be said for Permanent insurance which have level rates. Especially those policies taken a few years ago before the rate hikes. A lot of people like the idea of level premiums for life.

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