Life Insurance

Do you need life insurance?

If you’re single, living in an apartment, you probably don’t. At most, you’ll want a small policy to pay funeral expenses so the funeral doesn’t cause your family hardship.

If you’re single and you own a house or have other debt, life insurance to pay off your debt might be a good idea. If your parents, for example, inherited your house but had trouble selling the house, they would have to pay the mortgage payments until it did sell.

If you’re married, but have no children, you probably need life insurance, especially if your spouse doesn’t work or works at a job that is not well paid. If you died, would your spouse still be able to afford the mortgage on your house and pay other living expenses that your salary covers now? If not, life insurance could fill that gap.

If you have children, whether you’re married or not, you definitely need life insurance. Unless, of course, you have so much money that you can consider yourself self-insured. Otherwise, you’ll need enough insurance to be certain your kids will have enough to live on until they can support themselves.

How much life insurance do you need?

This is a tough one. Some advisers will tell you that six times your annual salary is a good rule of thumb; others will tell you as much as ten times your annual salary. The real answer doesn’t depend on your income at all, but on how much your family will need.

What kind of insurance should you get?

Term insurance is probably your best bet. Term insurance is purchased for a specific period of time, say 20 years. If you die while the insurance is in effect, your heirs get a specific amount of money. The cost of term insurance is usually a lot less than you would pay for other types of life insurance. One expert says it is about eight times cheaper than whole life, universal, or variable insurance for the same amount of coverage.

An insurance agent may try to sell you whole life, universal life, or variable life insurance, with the argument that it serves as insurance and as an investment. These types of insurance stay in effect for as long as you live and continue to pay for them. They usually build up a cash value that you can borrow against or spend. The problem is that they are not an efficient form of investment. You can earn more money by buying term life insurance and investing the difference in your 401(k) plan or a money market account or CD.

Your credit union can help you plan for investing your money wisely. Because they don’t exist to make a profit, but to serve their members, credit unions are often the best place to find advice on the safest and most efficient ways to invest your money. Don’t belong to a credit union? Find one near you. 

For more information on life insurance, visit Quicken’s insurance page.