So my wife and I have realized that since we are now parents, we need to make sure the family unit is taken care of should something happen to one or both us. This means life insurance, right? This I know from nothing. Can anyone give me some pointers? Suggestions? Advice? Thanks.
Well, I can tell you what Bob Brinker recommends.
Think of insurance as a commodity. Lots of places sell it for lots of different prices. You want as good a price as you can get from a company that’s top rated by A. M. Best.
Insurance is insurance. It’s job is to be there if something happens to you. The cheapest insurance with the biggest pay out is usually term insurance. 85% to 90% of term insurance lapses before payout. That’s because at some point (perhaps in your late 50’s) you get the bill and you conclude…the kids are all married and living their own lives, the house is paid off, you’ve got a good chunk in your IRA and 401(k)…the insurance has served its purpose and is now unnecessary.
Insurance agents will often attempt to sell you financial products in an insurance wrapper. These products will carry large commissions and high expenses (which is why they want to sell them to you). You can do better elsewhere.
So keep it simple. Keep it term and you should do fine.
In families with children, any working persons in the household should carry enough term life insurance to offset the loss of their income until such time as there are no dependent children left in the family.
Any non-term form of life insurance is a crap investment; if you feel the urge to buy non-term insurance, take the money you would spend on it, and go to Vegas to gamble it away; the odds are the same and you’ll have more fun in Vegas.
Two web sites with good primers on life insurance:
As an aside, since you’re thinking about this stuff, I’d consider disability insurance as well. Life insurance is nice, but if you or your partner are injured so badly you can’t ever work again, you’ll still have a lifetime of income to replace… and added expenses.
Life insurance is a business that bets you are not going to die before the policy matures so they can collect the maximum amount of premiums and you are betting that you will die priot to the maturation date so your heirs collect the maximum value for the least amout of premiums paid. It will give you peace of mind till the offspring are on their own. Then consider other options.
It’s pretty simple:
Stay far far far away from any program that combines life insurance & investment. In other words, stay far far far away from universal life, whole life, variable life, etc.
Buy term insurance.
Compare prices from at least a dozen companies.
Pick a company that has an A+ or A++ rating from AM Best.
More good advice here:
Yep, went through the whole insurance rigamarole when I had a young family.
- Stick with term.
- Stick with a solid company (A+).
- Buy the cheapest.
- Cancel the policy when the kids are self-sufficient.
The weird thing about life insurance is that you and the insurance company are betting on the same outcome. The insurance company is hoping you will not die before the policy ends, and you are also hoping you will not die before the policy ends. If you die the insurance loses (it has to pay big $$) and you lose (you’re dead).
Here’s how I calculated ours-
- Amount to pay off the mortgage.
- Best estimate of costs for college for both kids (undergrad at least, maybe grad school too).
- Replacement of that spouse’s income for at least 10 years.
We each have $2.5 million in term life insurance.