topic of life insurance doesnít have much going for
it. First, itís about insurance, which many people
find boring and complicated. Second, it can involve
paying money for something you may never use.
itís about death.
are difficult hurdles and probably among reasons why
many surveys show Americans are vastly underinsured when
it comes to life insurance, which might better be called
"income insurance" because its primary purpose
is to replace income from a family breadwinner.
life insurance is an uphill battle," said Byron
Udell, CEO of online life insurance broker AccuQuote.com.
"Itís not a product thatís fun to buy."
life insurance should be a fundamental part of financial
planning for those who have others relying on their
statistics show ownership of individual life insurance
policies is at the lowest level in 50 years, with only
44 percent of households owning them, according to the
insurance industry group LIMRA. And 86 percent of people
say they havenít bought life insurance because itís
too expensive, yet they overestimate its cost by more
than two times, the group found.
national survey commissioned by New York Life Insurance
Co. recently found that Americansí gap in protection
worsened considerably since the Great Recession,
amounting to a $320,000 shortfall, up from about
$289,000 in 2008. Americans say they want enough life
insurance, on average, to cover expenses for at least 14
years after the loss of a breadwinner. But they have
only three years of protection in place.
no surprise that Americans are underinsured. What did
surprise us was the magnitude of the gap and the fact
that it has grown so dramatically since 2008,"
Chris Blunt, co-president of the Insurance and Agency
Group of New York Life, said in releasing the results.
concerning is what the survey found about Americansí
perception of what life insurance is for. A majority
said the top reason for buying it was to cover funeral
expenses, but paycheck replacement is far more
good news for consumers is, the basics of life insurance
continue to apply. "The beauty of life insurance is
that itís not a fast-moving industry," said Amy
Danise, editorial director for Insure.com. "Unlike
health insurance, where what you know one month is wrong
the next month, life insurance advice is
is some of that advice:
whether you need it. The overly simple rule is that
single people donít need life insurance, married
people might and parents of school-age children do. The
specific answer is easy to determine. Ask yourself,
"Would anybody be hurt financially if I died and
wasnít bringing home money anymore?" If yes, you
need life insurance.
cash beneficiaries get, known as the death benefit,
replaces your income and can help your family meet
financial needs, such as living expenses, including the
mortgage or rent and health insurance, as well as kidsí
college funding, according to the Insurance Information
Institute. There is no federal income tax on life
much? Numbers get huge in a hurry when talking about
coverage amounts ó $500,000 or $1 million might seem
ludicrous but arenít for many people.
get your head around such large dollar amounts, ask
yourself a few questions, Udell said. For example, if
you make $80,000 and are looking at $500,000 of life
insurance, thatís about six yearsí worth of replaced
gross income. "When you die, and you will die, are
you planning to be dead more than six years?" Udell
"If I wrote you a check for $500,000 right now,
would you agree to work for the rest of your life for no
pay?" Most people wouldnít, he said. Or, if you
were out jogging and got hit by a reckless beer truck
driver and died, how much should your family sue the
beer company for: $500,000 or millions of dollars?
think thereís a fundamental misunderstanding about
what the economic value of a human life really is,"
of thumb say you should buy from five to 20 times your
income, which is such a wide range as to be useless ó
and such simple calculations are panned by experts.
and online calculators can help determine how much you
need, including ones at LifeHappens.org, ,
and Bankrate.com. Just realize most insurance
professionals and online calculators have a financial
interest in selling you more insurance, not less. And
no, the amount of life protection you get through your
employer is not enough.
The good news is that simple term insurance ó insuring
your life over a specific time for a specific amount of
money ó is relatively inexpensive. A 40-year-old male
nonsmoker in a good health can get $500,000 worth of
coverage for as low as $350 a year, Udell said, adding
that rates, on average, havenít changed much in the
past decade. But during the early 1990s, that same
coverage cost about $1,000 per year.
are usually pleasantly surprised at how inexpensive it
is," Udell said.
or perm? Term life is the easiest type to understand.
For example, 20-year level term means you will pay the
same premium for 20 years in exchange for a specified
payout if you die within that period. If you donít die
in that time window, your beneficiaries get nothing. But
maybe thatís OK because after that time, your children
will be grown and have their own incomes. And youíre
confident that your retirement nest egg will be big
enough to support your spouse.
life insurance, such as universal life or variable
universal life that have investment components, can be
much more complicated and much more expensive. But they
can make financial sense. Make sure you thoroughly
understand what youíre buying, Danise said.
new type of policy thatís gaining traction allows you
to tap your life insurance death benefit before you die
as long as itís for long-term care expenses, Udell
said. "And theyíre not that much more
expensive," he said.
more information on life insurance types, seek out a
broker, either online or in person, and read up at such
websites as InsureUOnline.org, III.org and
you just want life insurance to protect from financial
disaster, get term life. You can always get a different
life policy later, assuming youíre still in decent
health, and can cancel the current one. In the meantime,
youíll be covered.
it. As with other types of insurance, premiums can vary
widely, so get multiple quotes or use a broker. But donít
let indecision delay getting the insurance you need.
"Dying without coverage is a lot bigger problem
than paying too much," Udell said.
keep it a secret. Tell beneficiaries that your policy
exists, Danise said. "We receive tons of questions
every year from people whose relatives passed away and
mentioned having life insurance but didnít leave any
information," she said. "Imagine paying for
life insurance for decades and decades and having that
money go down the drain because your beneficiaries canít
make the claim."