Some will try to tell you life insurance is an investment. While there are exceptions to almost every rule – most of us should not view life insurance as an investment or wealth building tool.
Ok – then what is life insurance for?
Life insurance is to replace your income, so that upon your death those that depend on your income will be all right. A few supporting thoughts:
· If nobody depends on your income, life insurance may not be necessary. If you are single and without children – passing on life insurance is likely a good call.
· If you have enough saved to retire, then your income is no longer critical. If your income is no longer critical, you don’t really need insurance to replace it.
· For most of us, life insurance is most appropriate when we are young, with spouses and children that depend on us to bring home a paycheck.
Life insurance is cheapest when we are young (and need it the most). So then what is the strategy?
Buy insurance when it is cheap and you need it the most, and drop it when you have made your money and no longer need it. This type of insurance is called “term” life insurance. You pay a set premium, over a specified time period for a specified death benefit. When the time period is over, so is the insurance.
If someone is dependent on your income, and you don’t have a life insurance policy – look into term insurance today. A good rule of thumb is 10x your salary for a death benefit. You can adjust this downward if you have major assets. A term that covers you until close to retirement age is a good target as well.
As in many things, there are exceptions to most rules. Have a talk with an insurance agent you trust.