Life insurance can be a sensitive subject – no one wants to think about their own death in cold, hard economic terms. The reality is, though, that you and I will not be here forever. It’s not a question of IF, only WHEN.
And, truly, no one knows when. It is a real wonder to see that people are regularly enjoying an active life into their 90’s and even beyond. It is a real tragedy, too, to see children and adolescents people stricken with fatal illness, and young adults fall in the prime of their lives by unexpected heart failure, stroke, etc. Then there are fluke accidents. The point is simply, while it can be a morbid subject, we should all take stock and make what appropriate preparations we can.
As life insurance goes, the rates are best when you are young. Likewise, the rates are best when you are healthy. So, to follow that line of logic, a good time to start purchasing life insurance is when you are young and healthy.
That’s a good start, but it is certainly a little more complicated than that. Two major questions naturally arise: Do I NEED life insurance? and, can I AFFORD life insurance?
First,you do not really need life insurance if you have no one depending on you. Think about what would happen if you were to die in your sleep tonight. Who would be affected by this?
If you have children or a spouse or anyone else that you take care of – provide housing, food, clothing, etc. Then you should have something in place to provide for their needs after you pass away and until they can fend for themselves.
If you are young and single and have no dependents at this time, then you don’t really need life insurance, unless you wish to leave some money to someone for some reason in the event you should die. And some people do – that’s a personal thing.
AS AN INVESTMENT – there are much more effective ways to use any available capital you have than buying life insurance policies.
Now, HOW MUCH life insurance do you need? This becomes an issue of personal choice, of course, based on myriad factors,but here are a few things to consider.
First, when you do die, all of the assets in your name are accounted for (you should do some estate planning if you have any assets – a little legal protection goes a long way to maximizing what is left for your heirs and dependents, if you leave it to the probate courts, anything goes) And YOUR DEBTS ARE PAID FIRST. If you have no assets left, or not enough to pay all of your debts, then your heirs and dependents get zip. They DO NOT inherit your debt. So, again, if you don not need to take care of anyone, it really doesn’t make much difference – in fact some may find enjoyment in the fact that they are going to stick some relative with their funeral bill!
With the foregoing comment on assets and debt, the amount of life insurance you need depends on how much debt you carry, and what position your want the benefactors of your policy to be in when you pass away.
Do you want to leave them filthy rich? It will cost you more in premiums, but you can give those you leave behind the gift of a huge bequest. More practically, though, you may want to leave enough to pay off the debts and provide for basic needs for a given period of time so they won’t have to struggle.
When I was in my early twenties I fully expected to be dead by my mid-twenties. I lead a high risk lifestyle and lived on the very edge in almost all respects imaginable. I paid my way, carried no debt and no-one was dependent upon me. At his time, it would have made no sense to carry life insurance -what for? Who would it even go to?
Circumstances change. Now, for instance, I’ve got a mortgage, some law school tuition debt, a wife and four young children. If I should die in my sleep tonight, their lives would be turned upside down. Could a single mom raise four children while maintaining our suburban home? The property taxes alone are equivalent tot eh monthly payment on a new Corvette.
Because of my debt to asset ratio, my wife and children would pretty much get doodly squat, all said and done.
Except for the life insurance policies. I determined that if I would die I would want to put my wife in a position where she could pay off the mortgage in full, take care of any other outstanding debt, and live in relative comfort long enough to raise the kids, without needing to work for additional income.
And it is not expensive.
The first policy I took out was a ten-year term life policy for $250,000 I purchased through my American Family agent. He provides my homeowner’s and auto insurance, so I let him sell me a life policy, as well. The cost is $21/mo. and I can lock that rate if I extend for another ten years by a certain date. I decide to let that policy terminate after the ten year term.
Then I started shopping and comparing for an additional policy. Ultimately I settled on an AIG policy provided through MATRIX DIRECT -whom you can get in touch with online. The policy I chose is also a 10-year term life policy, for $500,000 double the American Family policy ($500K) for the same price – $21/mo. They sent me all the forms I need to complete in the mail, and scheduled a nurse practitioner to perform the required physical exam at my office.
This is pretty good protection at a pretty good price, so I added another $500K policy through AIG, to provide my family with a small safety cushion when I pass.
Of course, now I’ve got to watch my back ’cause I’m worth a lot more to my wife in a coffin than on the couch!