Should I buy life insurance and how much?

June 17, 2015
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A common question that I hear from clients is “do we need life insurance?”  The answer always depends upon your situation.  First of all, there are many types of life insurance policies. Some policies with “cash value” have been sold in the past as investment vehicles. For this discussion, let’s talk about the most common type, term policies.  A term policy is exactly what it sounds like. It is insurance that is valid for a particular term of time, usually 10, 20 or 25 years.  The policy owner will choose an amount that they would like to be insured for and also the term (the policy owner and the insured can be different people).  The amount of insurance and length of the term dictates the premium of the policy.

Term policies carry no cash value.  Think of them like car insurance.  If you do not get in to an accident then you will not benefit from the policy.  Term life insurance is the same.  Should you buy a term policy?  The question is usually answered by considering what would be the financial impact on those you love if you passed away.

Here are some people who should own term:

 -Married couples with school age children (unless they have substantial assets).  What if something happens to either parent?  If a tragedy strikes the primary breadwinner, then his salary will need to be replaced.  If something happens to the homemaker, the spouse will most likely have to hire a nanny and household help. 

-Married couples who need both salaries to pay the recurring bills. 

-Senior citizens may need small policies if they are worried about using their assets for burial costs.

Term insurance is the most inexpensive type of life insurance.  Some studies show that only 1% of the policies are ever enforced but it can be the difference between selling and keeping your house if your significant other passes away.  Discussing your personal situation with an advisor can help you decide how much term to purchase.  Also, remember that good health is important.  If you have health problems you can still be insured but it is sure to cost you more.

 Guarantees are based on the claims paying ability of the issuing company

 

“This is a hypothetical example and actual results may vary, as individual circumstances will be different in each case and not indicative of any investment product."

 

“This material is for general information purposes only and is not intended to provide specific advice or recommendations for any individual.  To determine which investment(s)/advice may be appropriate for you, consult your financial advisor prior to investing.”