Enrolled Agent-licensed to practice before the IRS, Samuel N Smith, EA, South Carolina
The answer to your question has many parts to the final answer. Let's assume I just got married and my phone has been ringing incessantly with insurance agents pedaling their life insurance policies. My wife and I know it just makes good sense to have life insurance-my policy covering her and vice versa. The question is given my occupation and I do not want her to work how do I plan "how much" life insurance? My employer can provide $50,000 for me and I am not taxed as long as I stay at or below $50,000. So from a cost standpoint that $50,000 is a given. I hope to have two children to keep my wife happy and raising kids. We know it takes a huge amount to just raise the kids much less educate them. We also know if I am smart at some point in my life I will be smart to have saved enough money to get out of the life insurance market and have savings to pay any funeral costs that may arise. So on today's date I know my "insurance needs" is at the highest point it will ever be assuming the two children are born and then we can avoid the "steamy `Saturday and be careless and now the third is here. So if I assume the first child will be born in two years that means in year 20 I have to have "college expense" funds". Is it a better investment to use life insurance or it better to open a mutual fund aggressive growth and invest a $100 pewr month for the next 20 years? Let's assume the second child in born in our fourth year of marriage. Now the same decision outlined above is with me again. What is often overlooked is the assumption is I will remain healthy and my income will increase each year. What happens if I become ill and diabled for two years? What disablity insurance plans do I have? Do they cover my "own occupation" or if I can flip hamburgers I am not considered disabled.
In order to make an informed decisions you have to consider all the options. Is it best for me to take a Gerber Life insurance policy on each child for $20,000, which then doubles, at their age 18? If I am confident that I can save sufficiently for the next 30 years I may decide to take a $1,000,000 30 year term policy but if I am not confident of my ability to save then I am sure going to use the "dollar cost averging" advantages of having a "cash value" policy and a mutual fund in the aggressive growth and invest $100 per month.
I ho;pe this helps you to see the complexity of your question.
The only way to know what type of life insurance you need, is to visit with a knowledgeable agent who can help you determine that. As Samuel showed, there are many variables to that question. Many people use more than one type of policy to achieve their goals. It can save you a lot of money and heartache to consult a professional.
Agency Owner, The Thomas G Sheehan Agency, 27 Glen Road Sandy Hook, CT 06482
The best way to identify your Life INsurance needs is to schedule a meeting with your trusted Insurance Professional. In that meeting, identify not only your current financial exposures (mortgage, auto loan, student loan, etc) but also talk about your plans for the future. Do you and your spouse want your children to attend a college or University? Do you have plans to purchase a business? These and many other personbal financial issues when discussed and carefully considered will help to identify your particular needs.
Insurance Advisor, Lordship Insurance Services, California
That is a very hard question for the average consumer to answer. Many people have these predetermined ideas about insurance (such as, only buy term and invest the difference or you must have a whole life policy). Keep in mind the only reason any insurance exists is insurers focused on needs in the marketplace and created policies to address them.
That being said I believe you need to have a consultative approach. This means that you need to meet with someone who is focused on providing people the right type of insurance and is not trying to push all people to one particular product. You need to do as you would with your doctor; give them info on what you think you need, answer their questions and allow them to make some suggestions for insurance that clearly meet your needs.
An example; if you were to say "I want as much insurance as my dollars will afford and I only need it for 10 years" then you only have a few options to consider. You didn't say you need cash accumulation or insurance to last a lifetime. When the agent gives you options let him show you how what he is suggesting meets your needs. You may have some ideas as to what type of insurance you need but give him/her the benefit of the doubt in proving to you that their suggestions meet your needs.
Don't just buy insurance; purchase the type of insurance that meets your needs and fits into your budget.
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In order to make an informed decisions you have to consider all the options. Is it best for me to take a Gerber Life insurance policy on each child for $20,000, which then doubles, at their age 18? If I am confident that I can save sufficiently for the next 30 years I may decide to take a $1,000,000 30 year term policy but if I am not confident of my ability to save then I am sure going to use the "dollar cost averging" advantages of having a "cash value" policy and a mutual fund in the aggressive growth and invest $100 per month.
I ho;pe this helps you to see the complexity of your question.
That being said I believe you need to have a consultative approach. This means that you need to meet with someone who is focused on providing people the right type of insurance and is not trying to push all people to one particular product. You need to do as you would with your doctor; give them info on what you think you need, answer their questions and allow them to make some suggestions for insurance that clearly meet your needs.
An example; if you were to say "I want as much insurance as my dollars will afford and I only need it for 10 years" then you only have a few options to consider. You didn't say you need cash accumulation or insurance to last a lifetime. When the agent gives you options let him show you how what he is suggesting meets your needs. You may have some ideas as to what type of insurance you need but give him/her the benefit of the doubt in proving to you that their suggestions meet your needs.
Don't just buy insurance; purchase the type of insurance that meets your needs and fits into your budget.
You will be glad you did