Do you need life insurance?

We’ve previously talked about how to claim life insurance benefits from your husband’s policy. But now it’s time to discuss something else: do you need life insurance coverage yourself?

If your husband had a life insurance policy, you undoubtedly know what a blessing it is to have an influx of cash at a time when life seems uncertain and bills start piling up. However, life insurance can be expensive, and you may be wondering if it’s really necessary now that you’re single.

There is no one right answer to that question, and I would be remiss if I didn’t point out that I am not a financial planner by trade. This article shouldn’t be construed as specific advice for your individual situation, but rather general information to help you decide for yourself the right course of action. With that in mind, here’s some food for thought.

5 Reasons You Need Life Insurance

Buying a policy can be expensive – particularly if you choose to get permanent, rather than term, insurance – so before you add a monthly bill to your budget, make sure you actually need life insurance. Here are five times when I think you should consider getting coverage.

1. Someone depends on you financially: If you have minor children at home, an adult child with a disability or aging parents, you may need life insurance. The main purpose of these policies is to replace income and provide stability to your survivors. If it would be hard for someone to make ends meet without you here, buy life insurance to cover the income gap left by your loss.
2. You carry debt: To be clear, debt cannot be inherited. You never have to be worried about your children being saddled with your debt if you die before it’s paid off. However, your creditors can most certainly go after your estate in order to recoup the money they lent you. That means proceeds from the sale of your house, for example, could end up going to pay your bills rather than to your heirs. However, life insurance is not part of an estate and can’t be intercepted by creditors. So if you owe a lot of money and want to be sure your kids get something after you die, consider buying a life insurance policy and making them the beneficiaries.
3. You have no savings: Let’s say you have no debt, but you have no savings either. In that case, buying a small life insurance policy to cover your final expenses – that is, the funeral and everything that goes along with it – may take some of the burden off your family. Once you hit a certain age, you’ll find you get lots of burial life insurance policy solicitations (or at least my 81-year old mom does!). These are the same as the “you cannot be turned down” policies you see advertised on TV. Quite frankly, I don’t think they’re the best deal and depending on how much longer you reasonable expect to live, you may be better off simply putting the amount you’d pay in premiums into a savings account instead. Still, they are an option that may make sense in some situations.
4. If leaving a legacy is important: Let’s say you have a favorite charity, school or institution and would love to give them one final gift when you leave this world. In that case, buying a life insurance policy and naming them the beneficiary can be a way to donate more than what you could through your savings.
5. You can’t afford long term care insurance: My aunt recently went into an assisted living facility, and I am thanking my lucky stars she had the foresight to purchase long term care insurance. Let me tell you, long term care will absolutely wipe out even the biggest of bank accounts if you have to pay out of pocket. Don’t think Medicare will cover ongoing care either. That said, long term care insurance isn’t cheap. If this coverage is out of your budget, consider buying a combo long term care-life insurance product or look for life insurance with a living benefit that can be used for these expenses.

How to Find the Right Life Insurance Policy

Once you’ve decided you need life insurance, the next step is to find the right policy. The Simple Dollar has a fairly comprehensive guide to life insurance on their website so I won’t reinvent the wheel.

You can find their guide here. Then scroll down to “What You Need to Know When Buying Life Insurance” to read what they have to say. They also offer their top picks for insurance companies and have a life insurance calculator you can use.

What I will add when it comes to buying life insurance is this:

• Term is cheapest, but it will expire. Whole or universal life is more expensive, but it can’t be cancelled so long as you make payments. If you’re buying for living benefits or long term care coverage, that’s something to keep in mind.
• If you want coverage for a specific reason, such as to leave a legacy or pay for final expenses, buy a plan with a death benefit that fits your needs. Keep in mind that in 15-20 years, $10,000 won’t buy as much as it does today.
• If you are buying coverage to replace your income, a good rule of thumb is to purchase a policy with a death benefit that is 10 times your annual wages.

Insurance brokers can be a wealth of information, so by all means, use their knowledge. However, after you’ve had a conversation with a broker, take his or her recommendation to another person you trust – preferably a financial advisor – and see what they think. A good broker isn’t going to mind if you need some time before buying. Run far, far away from anyone who tries to pressure you into an immediate sale.

Did you buy life insurance after your spouse died? What advice do you have for other widows who may be considering a purchase?

Photo courtesy of http://401kcalculator.org

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