Life Insurance Timing
Staff
When should someone consider purchasing Life Insurance?
(4) Answers
Guru
Dan,
In general, one should consider purchasing life insurance when there is a current or soon-to-be-anticipated financial need. A financial need for life insurance means, in effect, that someone would be FINANCIALLY adversely impacted if you were to pass away.
In the overwhelming majority of cases, the first purchase of life insurance occurs when a couple is having children (either when they are planning to get pregnant, when the couple just got pregnant, or when children were recently born). Almost by definition, having children means you have other people who are financially dependent on you, and thus would be financially impacted if you were to pass away.
In some cases, couples also purchase life insurance even without having children involved, simply because their lives have become so financially co-dependent. For instance, if one individual's income primarily supports the couple and maintains the current standard of living, insurance may be appropriate to allow a surviving spouse to continue that standard of living in the event of an untimely death. However, it's worth noting that for many couples, particularly when they are younger and still don't have children, life insurance is often less necessary, because the reality is that both members of the couple may be capable of separately supporting themselves if necessary if there was a divorce.
There are some other reasons for life insurance as well, associated with businesses, and with managing estate taxes, but those situations would merit a separate discussion.
At the end of the day, life insurance represents a trade-off - to pay a portion of your current income to manage the financial impact of a potential untimely death. Even individual and couple will make their own decision about whether/when to engage in that trade-off, depending on their own personal goals. But to say the least, if someone really IS financially dependent on your income, consider protecting them!
I hope that helps a little!
Guru
I agree with Michael's answer. Here are a couple of other thoughts on this:
-Often one's employer will provide some life insurance free, or at preferred rates. The first $50,000 worth is generally a tax-free benefit also. So employees should certainly request information on this from their human resources contact.
-When only one person in a household of two or more works, life (and disability) insurance on that person is especially important. Even if the other parties have marketable skills, they may not be able to get a job immediately, or be in a position to replace the previous income.
-It's always a good idea to get life insurance while you're healthy and fit. For example,if your weight fluctuates and you are sometimes significantly overweight, you'll likely want to get underwritten for life insurance while your weight is at an ebb, since overweight folks are generally charged more. Similarly, if you can apply a year or more after having quit smoking, your rates are much more favorable.
-For many, disability insurance is really more important than life insurance. If I die, my care won't cost anyone anything (beyond whatever death services are provided). On the other hand, if I am injured so I can't work anymore but need care, I may need significant financial assistance for some time.
-Life insurance rates are really pretty cheap by historical standards right now. If it didn't seem worthwhile to you several years ago, it might be worth checking again.
-Be wary of life "whole", "variable", or "universal" life policies that combine an "investment" component with the insurance component. Such policies are often aggressively pushed by insurance agents because they generate unusually high commissions, but they are generally not nearly as good a deal as a straightforward "term" policy is.
I disagree with Dave. Everyone should start a permanent life insurance program out of college. The better mutual companies such as Northwestern Mutual and New York Life pay tax-free dividends of 6 to 7 percent right now. I hear advice from people saying buy 20 year term. Unfortunately, when that expires you still need life insurance and now term gets so high in price most people drop it, and term companies only have about 3 percent of the death claims. Ask successful people you know and you will be amazed the sharpest people that own one of these two companies for additional retirement income from the cash, or the death benefit if still needed. To gamble with your insurability and not at least buy a convertible term policy is a terrible decision. Not what the talking media heads say, I know, but most of them do not know how great the policies are from a company like Northwestern Mutual.
MIKE is WAY OFF...... the sooner you buy life insurance the better. First your making sure that no matter what health condition that ever comes up it doesn't matter because you had life insurance as a kid. Also the amount of money that builds up over time is incredible. I just left a clients house last night and with a Northwestern Mutual policy assuming the same dividend rate if this 6yr old boy keeps his policy in force for 2800 a year , by the time he is 65 yrs old he would have put in 173,000 and he could cash it in for 1,300,000, and the whole time he had a death benefit included. How can you beat that, especially in these hard economic times.
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