Dollars & Sense
As we slowly emerge from the haze of summer, I’ve been thinking about Cher’s classic line from the 1987 movie Moonstruck: “Snap out of it!” Without slapping you, it’s time to address some of your not-yet-completed, New Year’s money to-dos.
If you’re like many, the broad category of dealing with unpleasant issues got pushed to the back burner right around Independence Day weekend. Because September is Life Insurance Awareness month, I’m pulling that simmering pot from the back to the front of the stove-and turning up the heat.
According to research conducted for the insurance industry by LIMRA, 31 percent of Americans say they are more likely to buy life insurance because of the pandemic and a whopping 44 percent of families would face financial hardship within six months if the household’s primary wage earner were to die suddenly.
You might think that these two statistics would prompt urgent action, but the hurdle with life insurance is that it requires you to contemplate the worst possible of all bad things, death. Even if you scale that first hurdle, others await: aggressive insurance sales pitches; lengthy policy agreements; and complex fee structures.
Before you throw in the towel, know that the process of buying life insurance is easier than ever and it all starts with a simple question: “If I were to die now, would anyone endure financial hardship?”
If the answer is yes, you will need to purchase enough coverage to help pay for living expenses and ongoing care, as well as provide a lump sum to fund future needs like college or retirement. There are online calculators that can help you figure that out, but I like the free one that was developed by The American Institute of Certified Public Accountants’ 360 Degrees of Financial Literacy web site.
Once you determine the amount, it’s time to figure out the type that works for you. Most people have a specific insurance need for a defined period, which is why term life insurance is the go-to coverage.
Here’s how it works: during the stated term of a policy (a certain number of years), if the insured dies, the insurance company pays the face amount to the named beneficiary. The cost is reasonable for those in good health up to about age 50. After 50, term gets more expensive, but hopefully, at that time, your insurance need will be reduced (i.e., kids will be grown and on their way) and/or your savings and investments will be sufficient to cover your needs.
To shop for term, start with your employer’s benefits. Many companies offer term that is equal to a multiple of salary, with an opportunity to purchase additional coverage beyond the base amount. If that extra coverage is portable (meaning you can take it with you if you were to get another job), it is worth considering buying for you and/or your spouse. Otherwise, hop online to find competing quotes.
On the other end of the spectrum from term is permanent life insurance (whole, adjustable, and universal life policies fall under the umbrella).
Permanent coverage is more expensive because the death benefit remains in place for your entire life, which is why it’s most often used for estate planning purposes or to facilitate small business buy-sell agreements.
Permanent policies also have savings or investment components. If you are getting a hard sale for permanent coverage, consult a fee-only financial adviser, who can evaluate your needs, determine the right type of policy, and refer you to a reputable agent, if the more expensive coverage is warranted.
Jill Schlesinger, CFP, is a CBS News business analyst. A former options trader and CIO of an investment advisory firm, she welcomes comments and questions at email@example.com . Check her website at www.jillonmoney.com .