Life insurance: Is your policy enough?
Does someone depend on you? Then you need life insurance, said George Rowand in USA Today. Nevertheless, about 40 percent of Americans have no such policy, according to LIMRA, an international association of life insurance and financial planning companies, “and half of those who do are underinsured.” Even more concerning: One in three parents with children under 18 isn’t insured. Maybe it’s because, with people living longer, life insurance feels like something we might need far in the future, “so why worry now?” Although the options may seem overwhelming at first, there are two basic types. Term insurance, which is the most affordable, covers you for a set period of time, “such as 10 or 20 years.” Whole insurance, also known as permanent insurance, lasts a lifetime, and can be used as an investment vehicle.
“Most people would do best with simple term life policies,” said Beth Pinsker in Reuters.com. Term policies charge a low monthly premium, often $50 a month for a person under 55. But most people who have life insurance get it through work, and it ends when they leave their job. The typical U.S. company usually offers a group benefit of one to three times a worker’s annual salary at no cost to employees, with an average coverage of about $236,000. For younger workers with no family and no serious debt, this may be sufficient. But traditionally, the rule of thumb has been that life insurance coverage should be 10 times your yearly salary. Many experts now recommend up to twice as much. About 70 percent of workplaces offer additional optional coverage, according to LIMRA, which can be a smart option for many people. Such group benefits “usually require little underwriting, which means no doctor notes or health restrictions.”
The biggest mistake buyers make is underestimating how much insurance they need, said Maryalene LaPonsie in USNews.com. The old 10-times-income rule of thumb “could leave many people underinsured.” In addition to replacing lost wages, purchasers should consider future expenses such as college tuition, mortgage payments, and other debt. “Unlike many other assets, the death benefit from life insurance is not taxable, meaning it can be a simple and versatile way to provide money to loved ones left behind.” “Applying for life insurance means answering some pretty personal questions,” said Barbara Marquand in MarketWatch.com. Don’t let that stop you from getting a policy. For example, maybe you think being too overweight will keep you from getting the best rates. Apply anyway if you need coverage. You can always ask your insurer to adjust your rate later if you lose a few pounds. But as long as you don’t have life insurance, “you put your family at financial risk.”