Life Insurance: A Guide to One of the Most Unpleasant Purchases of Your Life

Life insurance isn't fun to buy. You can't wear it, eat it or show it off to the neighbors. Buying life insurance can be painful too. It forces you to think about your own death.

The single, overriding reason to buy life insurance is to provide an income for your dependents should you die tomorrow. Families with young children almost always need a lot of coverage. The younger the children, the more insurance is needed. Consumer Reports' Insurance experts recommend that every family member who has an income to replace analyze his or her own life insurance needs. If both spouses contribute to the family income, both need insurance. There was a time when companies concentrated on selling to men.

Today, most wives are wage-earners. Almost half of all women with a child under 1 year old are in the work force, either as the sole breadwinner or as one provider in a two-income family. These women need life insurance. Couples without children should determine whether the surviving mate would suffer financial hardship if the other died. Children generally don't need insurance since parents normally don't count on them for support.

If you're single with no dependents, you're not a prime prospect no matter what life insurance agents say about buying it now so you'll have it later when you need it. Paying for insurance when you don't need it is a waste. A recent survey of Consumer Reports readers points to inadequacies in many people's coverage. About 39 percent of households surveyed had less than $50,000 coverage. About 40 percent carried $100,000 or more, which is closer to what recommendation of Consumer Reports' editors recommend. How much coverage do you need? First figure what your family's expenses would be if you died tomorrow.

There are immediate, death related expenses like estate taxes, probate costs, funeral costs and any final uninsured medical bills. Then there are all the daily living expenses of your survivors, funds for emergencies, any necessary child-care and future education, as well as funds to pay off a mortgage or a car loan and other debts.

Social Security survivors' benefits help in coping with these expenses. Be sure to take them into account when calculating your survivors income needs. To arrive at the amount of additional insurance, if any, you should have, subtract the assets from the needs. For most people with dependents, this number is likely to be quite large. Review your insurance needs every five years, and more frequently if your financial situation has changed significantly.

Sources:

Greenback, Bill Life Insurance Sales Ammo: What To Say In Every Life Insurance Sales Situation 2006

Steuer, Anthony Questions and Answers on Life Insurance: The Life Insurance Toolbook 2007