Life Insurance Refresher Course – Part I

Life insurance is one of the most complicated of financial products for consumers.  Should I buy a policy that builds cash value?  Should I stick with term insurance?  Should I buy insurance on my spouse?  How about my children?  What follows is an excerpt from my (co-authored) recently published book, “J.K. Lasser’s New Rules for Estate, Retirement and Tax Planning– Fifth Edition”, John Wiley & Sons, Inc., publisher.

If your primary purpose is to provide your family with a source of income should you die prematurely, then level term insurance is your best bet. This assumes that you have a wealth accumulation plan (retirement plan) in place. In working with our clients, we normally recommend either 15-year or 20-year level term policies. This is because we have implemented a wealth accumulation plan that is expected to achieve total financial independence by the end of that period. For example, let’s say that you determined that you need to accumulate $3,000,000 of investment capital to be financially independent. Once you have accumulated that sum, you no longer need life insurance as a source of income protection for your family. It is possible that you might need permanent (cash value) life insurance for other reasons, such as estate liquidity. Remember, because you can convert term insurance to permanent insurance without having to pass a new physical exam, you have left your options open.

Insurance on a Homemaker
If you have young children, replacing the services of a homemaker can be quite expensive. Ask yourself this question: If my homemaker spouse were to die, could I afford to pay someone to perform those services out of my current income? You may be lucky enough to have a family member who could step in and provide childcare services. In this case, no life insurance would be necessary. On the other hand, if you decide life insurance on a homemaker is necessary, a $150,000 to $500,000 term policy should provide adequate coverage. By buying a 10- to 15-year level term insurance policy, you will provide coverage until the children are old enough to assist with their own care.

Insurance on adult children
If you have adult children who have started their own families, you might consider buying insurance on their lives to provide protection for their families. We are sure you can remember how tight cash flow was when you first started your family. This is a situation where you have the cash and they have the need. From a selfish point of view, if you had a breadwinner son-in-law die without enough life insurance, you might feel compelled to step in with financial support for your daughter and grandchildren. Believe us, paying the premiums on a large term life policy for your son-in-law is a lot more palatable than financially supporting a second family! The latter could have a serious negative impact on your own estate and retirement plan.

How to Get the Best Deal
Fortunately for the consumer, term insurance is a very competitive product. In terms of planning and budgeting, 10-, 15-, or 20-year level term is advised. That way, you have a predictable premium for a fixed period of time. To access competitive quotes on-line go to the Resource Center at then click on “Links”; then click on “Life Insurance Quotes.”

To get the best deal, first decide how much life insurance you need and what kind of term insurance best fits your circumstances. For example, if you decide that you need $750,000 of 15-year level term life insurance, first, go online to get a quote. Then, if you have a local agent, ask him or her for a quote. A simple comparison will ensure that you get the best deal. Personally, we prefer to work with a local agent because you will receive a more personal level of service.