- Term insurance is almost always the best bet for families.
The best insurance for families is almost always term insurance. This is pure insurance and you have no special savings accounts in it or no investments associated with it. It’s just straight insurance and if you die, the insurance company writes your beneficiary a check. These are the most common insurance policies. People usually buy them for 20 years, then after 20 years, you have to renew the policy.At that point, if you still have young children or if you still have children in college then you still need that insurance. But if you are healthy you can get a new term insurance policy for another 20 years. It will be more expensive, but that will be your best buy.
If you are ill or your husband or the breadwinner is ill and cannot get a new term insurance policy, then you can convert that term policy to a permanent life insurance policy that will pay for the rest of your life. It will pay a lower amount, but you will be older so you won’t need as much insurance as you need when you are younger.
If you’re ill or your husband who is a bread-winner is ill and can’t get a term policy, you can convert your term policy to another life insurance policy. - Consider giving up life insurance once your children leave home.
Once the children leave home, the question is whether you need insurance at all. If you’re married and your husband has sufficient resources so that if he died you could live, if he has a pension, if there’s some kind of survivors benefit so that if he died you could live on it, you don’t need insurance at all. At that point you should be putting money into retirement investments for the future. You should not be spending them on insurance premiums. - Don’t buy life insurance if you are single.
If you are single and have no dependents, there is no reason to have insurance at all. The only reason to have insurance is because you have dependents to support. Life insurance agents will try to talk you into it because they say, “Maybe someday in the future, maybe you’ll get married or maybe you’ll have children or maybe your parents will be ill and maybe you’ll need life insurance then” – they give you a whole series of maybes just to sell you insurance. But if you’re single you don’t need insurance. - Don’t buy life insurance if you are divorced or widowed and your children are grown.
If you are divorced and your children are grown so that you have no obligation to support the children, you don’t need insurance. If you have insurance then you should cancel it and put it toward your own savings and your own investments. The same is true if you’re widowed and you are not supporting children. Just keep in mind that the only reason for insurance is to support dependents, so when reach the point where you have no dependents, then you don’t need the insurance anymore. You should be looking at something else. - Life insurance is not a way to save money.
Insurance agents like to tell you to save money in an insurance policy. They sell you cash value insurance policies with high commissions, usually called universal policies or universal variable policies, often linked to the stock market. The rationale is that you only have to pay ten payments or fifteen payments and after that it’s paid up – you’ll have insurance for life, you will have cash in the policy, you can borrow out. But in fact, many people who bought these policies aren’t paid up when they thought they would be, because it all depended on the stock market going up. If the stock market doesn’t go up (which it didn’t), you have to pay for another ten years or 20 years or else your policy will eventually lapse. People don’t understand that because these are such complicated policies; which is another reason that I absolutely do not buy them.
My bottom line: saving in an insurance policy is nuts. You’re paying high commissions, to get the money out you either have to cancel the insurance or you have to borrow it, and if you borrow it you’re going to pay interest. The interest accumulates in your policy, and that reduces your cash value so you have less cash in the future. The whole thing is ridiculous. You shouldn’t even consider it. It sounds good when the insurance agent says it, but for you it is not good.
- The two times you should buy life insurance even if your children are grown.
- If you have a child that’s handicapped in some way, and you know that this child will never be able to support himself or herself so you have a lifetime obligation to that child, then you should be looking at a cash value policy of some sort.
- If you’re so rich that you will owe estate taxes, you might say, “I’ll buy a cash-value policy.” For example, if you have a lot of money that you’ve saved up through your IRA or some other pot of cash, and it is money you know you will never need, and will never touch for the rest of your life – you they might put that into a life insurance policy in a single payment, one lump sum. Then you have that life insurance policy and it’s guaranteed paid up in this case. When you die the insurance proceeds go to your kids tax free. So that’s one use of cash value life insurance if you have a pot of money that you know you will never need for the rest of your life – but you have to know that.
But there’s another way of looking at it. If you’re so rich and you’re leaving your children so much money, the heck with it. Let them pay the taxes – they’ll still have plenty left over. So you don’t even necessarily have to buy life insurance in that situation.
| 6 rules for life insurance |
April 01, 2010
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I am 50, a widow, and have no children. With that said, you say that I should not buy life insurance, then what would I need to do to prepare for the future payments of my final expenses?
Hi Sierra123,
You can get a pretty good estimate of your final expenses. Just save the money. Put the amount that you’d otherwise spend on insurance into the bank each month. Trusting that your need for final expenses are far away (!), you should build up a considerable sum–far more than funerals cost.
If you bought insurance, who would be the beneficiary? Are you sure that you to want to pay a lifetime of premiums to give the beneficiary that much money? Besides, the insurance company wouldn’t pay out fast enough to cover your final expenses. The amount would still come out of your savings and the beneficiary would collect on the policy later.
Best, Jane
Hi, Jane,
What about a whole life insurance policy already purchased? I’m 60, about to retire, divorced and the mom of three grown sons. My yearly premium is only around $132 because dividend reduced what had been $350. Cash value is about $32,000 but death benefit almost $100,000. I thought that amount would be a good inheritance for my sons when I die. Should I cash out and invest instead? I don’t have anything else to really ‘leave’ them. My retirement savings are present but not great. Thanks.