Life Insurance- What is it for?
Today's life insurance salesman has a dazzling array of products to offer. Before deciding on what is best for you, there are some basic questions which should be addressed.
What is the purpose of this life insurance?
How long will I need this life insurance?
How disciplined am I with money?
Your life insurance is only working for you if it is meeting your actual needs. Life insurance should not just be a mindless number. When you buy life insurance, you are using part of a limited resource- your money. To be most effective, life insurance should be part of an overall financial strategy.
Here are some examples.
Sue and Charlie have two children. Both are now college graduates, employed with good jobs, and are paying off their remaining college loans. Sue and Charlie are both in good health. Sue and Charlie have been very successful in saving for retirement. With the help of a certified financial planner, they have determined that their retirement savings will comfortably support them both at least through age 100. Charlie has always had life insurance, but is wondering if his whole life policies are still necessary.
Point 1: Sue and Charlie have effectively provided for each other in the case of death by virtue of the retirement savings. Life insurance for spousal protection is not necessary.
Point 2: The threat to their financial stability is no longer death, it is illness and long term health care which could draw down the retirement savings prematurely. Sue and Charlie would be wise to consider long term health care insurance as an alternative to life insurance.
Point 3: Life insurance could increase the ultimate inheritance for the children, but they no longer require it from their parents for protection. (p.s. Remember that life insurance passes to the beneficiary without going through probate, but it is still part of the taxable estate.)
Henry is divorced. He has no children. His wife has remarried. When she remarried, he changed his life insurance beneficiary to his brother Joe. Henry has retained his policy. Henry is concerned about retirement savings although it is fifteen years away.
Point: Henry has no necessity for life insurance. He could have a better plan if he invested those dollars into his retirement investments.
Mike has a good job and is the major breadwinner in the family. Mary also works outside the home hoping to help with the cost of the upcoming college education for the twins. Mike's job provides $10,000 of group coverage. Mike could up this coverage substantially for $250 per year but has decided that he can reduce the size of college loans by applying that $250 per year for education. After all, his family has a history of longevity.
Point 1: Mike has NOT taken care of his family!
Point 2: See point 1.
For most people, the purpose of life insurance is to provide protection of immediate family from either the loss of income from death of the cost of burial. The type of protection needed and the amount of protection needed change over time. To make most effective use of your dollars, consider these changes as part of your financial strategy.
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