Just one of the many things I’ve never learned about Adult Life (see also: investing, not being in debt and not eating cake for breakfast) is whether or not I should have life insurance, and if so, how to chose it without getting taken for a ride. I see ads on television featuring bereaved wives and their bingo playing pals, and I do have this vague awareness that if either I or my husband dies, the other will be financially screwed. Neither of us could pay rent here alone, much less continue to pay for food and new socks for the kids. Since we do plan on dying at some point, and probably not together, it seems that the screwing is inevitable, if the timing is unpredictable.
I’m employed, and bring home about four times what my husband does, but still not enough to keep me in the manner to which I’ve become accustomed (which is about a paycheck away from homelessness and starvation). My husband is 22 years my senior, not in good health, and does not work due to disability. He receives money from SSDI.
So…life insurance. Is it a good idea? Is it a scam? Would I be better off sticking $50 a month into a savings account? Term life or whole life or…I don’t even know what I don’t know.
The almost-overwhelming opinion of consumer advisers is term life insurance, as opposed to whole life or other blended vehicles. With term life, you are buying purely an insurance product, not some mix of insurance and a poorish-performing investment.
There are many Web sites you can go to get quotes from several companies with one inquiry.
Disclosure: I arrange certain types of life insurance for clients. It’s a small part of what I do but it’s there.
Life insurance is a tool, nothing more. It’s something you MAY need depending on your financial position.
Raza is not wrong about term being largely indicated, though her reasons - ‘poorly performing’ and so forth - are a bit wide of the mark. Yes, some insurance policies have such things and they tend not to grow at market. On the other hand they can have much less risk than the market as a whole, hence the lower returns.
But unless you have a very large portfolio, using life insurance as investment is a wrong decision. Instead define your nature of risk.
Were I to die, would my spouse/children be able to get by?
Were my husband to die, would I/my children be able to get by?
Most of my clients - excluding deep pockets using it as a means of passing on wealth to children and avoiding taxation as most life insurance is tax free upon payout - define their major risk factors as:
Paying off house
Providing for spouse/children
Paying for college for children
If you have any of these concerns then life insurance might be your thing. But I’ve certainly had clients who’ve asked about it and after looking at things I’ve told them they don’t need it.
So figure what the risk is. How much would your spouse need to continue his lifestyle were anything to happen to you? What level of income would need to be replaced and does the house need to be paid off? Once those levels are resolved you’ll know how much you need. Then poke around and see what products are out there. Provided you’re in pretty good shape physically - not too old, not sick with anything long-term and nasty and so forth - term can be pretty cheap for several hundred thousand dollars worth of insurance.
One thing term can’t do is generally provide any form of long-term or early benefit payment. These riders, traditionally attacked to whole of universal life, provide a monthly benefit should you or your spouse - whichever is insured - required long-term in-home or nursing home care. With a long-term care policy it provides against that sort of thing. With early benefit riders it takes the life insurance death benefit and allows for you to draw it out while you’re alive but incapacitated to whatever extent.
You didn’t ask about it, but you may want to consider purchasing long term disability insurance as well, separately. You mentioned that SSDI pays about a quarter what you earn. Long term disability can pay 60% or more instead, which might make a big difference. From what I understand these policies can be difficult to buy, and may contain tricky wording that could make it hard to collect. I just have the one my employer buys for me.
When the spouse and I bought our first house, we bought enough term insurance to pay off most of the mortgage; we bought second similar policies several years later. The plan has been that by the time the term policy runs out, we will own a house free and clear.
We have also usually had small life insurance policies from work, one year’s salary.
We have one child, the spouse’s bio-baby, who has a second set of parents and is now an adult.
We both work full time and own a house well within our means.
We have zero life insurance, as there is enough money in the bank for either of us to live on comfortably, and we have no debt or children to support. We do have long-term care insurance, which I would recommend if your husband is not in the best of health. Facility or in-home care can bankrupt you in nothing flat. Problem is, he would have to reveal his present state of health to the insurer, which could likely jack up the rates.
This probably doesn’t apply to you , but if either you or your spouse belongs to an actual pension plan there may be a death benefit. If so, you should take that into account when determining whether you need life insurance. I have never had life insurance for myself.The death benefit from my pension plan is three years pay which was always enough to pay off the mortgage. And with the house paid off, my husband’s income would have been enough.