Life insurance can be tough to buy, and not just because
it involves facing your own mortality.
Don't overlook disability insurance, either;
you are more likely to suffer an income-depleting disability than to die early.
Anyone who has dependents but is not independently
wealthy needs life insurance.
Formulas vary on how much to buy, depending on
who you ask. The American Council of Life Insurers recommends five to seven
times your annual salary. Other experts say 10 times.
Because both current protection and a good
future investment are necessary, consumers should weigh carefully the advantages
of insurance before buying.
Ask yourself: How much would my family need
per year to live? How many years would they need it? What big items would I
want a policy to cover: college tuition, paying off the mortgage.
After coming up with an answer, adjust it
for inflation of perhaps 2-3 percent a year. Then subtract the other resources
that may be available, such as Social Security or other group life-insurance
payout from an employer.
Term or Life?
There are two basic types of life insurance policies:
term and whole-life. All others are variations of these two.
Term insurance is protection that insures
for a specific period. It pays a benefit only if you die during the period covered
by the policy. Whole-life insurance, often called "straight" or "permanent"
life, is protection that can be kept in force for as long as you live and pay
the premiums. Whole-life insurance builds cash value, which increases over the
years on a tax-deferred basis.
There's major controversy about the value
of insurance as an investment. Whole-life policies, with their fixed premiums
and cash value (which can be borrowed against or collected if you terminate
the policy), are considered by many as an effective way to protect a family
Term insurance, on the other hand, is a much
less expensive type of insurance, and achieves the same purpose during the term
of its existence. However, there is no cash surrender value or borrowing privilege.
Before the Internet, consumers relied on agents
and paid commissions.
Now consumers can buy insurance commission-free
by phone or even online. Free price quotes are available from hundreds of companies
and www.insure.com. Reliable
companies selling low-commission insurance include Ameritas Life, (800) 552-3553;
Zurich Kemper Life, (800) 983-3279; and John Hancock Life, (800) 742-6262.
People who have special considerations, such
as chronic health problems or complex financial needs, are better off using