War -- what's it good for? Well, for better or worse, it reminds us of our mortality.
While mixing a discussion of mortality with money may seem vulgar, the hard truth is that if anyone relies on your income to pay the bills, you need to make sure those bills will still get paid after you're gone. Enter life insurance.
If you don't have dependents, or if you're married and your spouse would get along just fine without your paycheck (though heartbroken, of course), then you probably don't need life insurance. So, go and read some other Foolish article. (May we suggest you learn about disability insurance, coverage even swinging bachelors and bachelorettes might need since a young person is many times more likely to become incapacitated than to die before he/she reaches age 65?)
If you do need life insurance, you'll first have to decide which type. It comes in two basic flavors: cash value and term. Cash-value life insurance -- and its variants, such as whole life, variable life, and universal life -- combine coverage with investing. A portion of the premium goes toward the coverage and another portion goes toward accumulating a "cash value" or into an investment account.
This sounds good... until it comes time to write the check. Cash-value policies are very expensive, both in terms of the expenses charged by the company and the commissions earned by the agent. Plus, the investment component isn't so hot. That's why most people should look into term insurance.
Term insurance is just plain insurance -- no investment component. This makes the policies cheaper, less complicated, and easier to comparison shop.
The next big question, and perhaps the hardest to answer, is how much insurance to get. We have an entire article on that topic in our Insurance Center, but here are some factors to consider:
- Your children and your spouse will receive survivors' benefits from Social Security, so a life insurance policy won't have to replace your entire income. You should receive a statement annually that estimates the monthly check your family will receive, but you can also get an estimate at the Social Security Administration's website.
- You only need insurance for as long as you'll have dependents. If your kids are young, consider a 20-year term life insurance policy, which should cover them through college. You shouldn't need a policy that extends into your retirement years (unless you expect to be paying Junior's expenses after you're 65).
- Don't skimp. Getting an additional $50,000 to $100,000 worth of coverage is not expensive for relatively healthy people.
For more information, drop by the Fool's Insurance Center.
