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INSURE YOUR LIFE

CRUNCH THE NUMBERS TO DECIDE AMONG THE TYPES AND AMOUNT OF LIFE INSURANCE

WILLIAM J. LYNOTT

DO YOU need life insurance? That depends on your personal and business situation. If anyone depends directly on you for financial support, you should have life insurance. If there is no such person in your life, life insurance would be a waste of money. That’s the short answer. The more complex question is what kind of insurance is best for you if you do need it, and exactly how much insurance should you buy? Here are some variables to consider.

WHOLE LIFE INSURANCE

Whole life insurance comes in three varieties: traditional, universal and variable. For the most part, I believe that you should avoid whole life insurance policies. As an investment vehicle, whole life insurance is a mediocre choice at best, and downright lousy at worst.

Specifically, it is subject to the ravages of inflation and will not bring you the returns that you can find in a majority of conventional investments regardless of which variety you choose. On the other hand, the payments remain the same throughout your life, as compared with term life insurance, in which annual rates go up as you age.

TERM INSURANCE

In the long run, term insurance is a more cost-effective way to buy coverage. It is basic death benefit protection. In most cases, it saves you a lot of money, and you’ll have a simple policy that is easy to understand.

Your term policy won’t be encumbered by any complicated “cash surrender value,” a provision of whole life insurance policies that is the amount an insurance company will pay to the policyholder if the insurance is voluntarily terminated prior to the insured event, and you’ll have a dependable death benefit in the exact face amount shown on the policy. Just make sure there is a guaranteed renewable clause in the policy and that you are protected against cancellation.

WHAT’S ENOUGH?

The most important issue when deciding on the amount of life insurance to buy is why you are buying it. Life insurance on your life obviously provides no benefit to you. It is for the sole purpose of providing financial relief for your survivors. How many of these people there are and how much help they will need are the defining factors that determine how much insurance you should have. For example, if you have a wife and six children, they will suffer financially if you die and will be left without adequate coverage on your life.

DO YOUR HOMEWORK

No simple table or rule of thumb can be depended on to tell you how much insurance to buy. You should consult with your insurance agent, accountant and trusted family members in making this important decision. OM

Information in this article is provided for educational and reference purposes only. It is not intended to provide specific advice or individual recommendations. Consult an accountant or tax advisor for advice regarding your particular situation.

DR. LYNOTT is a freelance writer who specializes in business management and personal and business finance. Visit www.blynott.com, or to comment on this article, visit tinyurl.com/OMcomment.