Financial Literacy - Families and Finance
Life insurance needs vary with lifestyle

Not everyone needs life insurance, but it's a safe bet that most people could use some coverage at some point in their lives.

Life insurance comes in two flavors: term and permanent. Permanent will stick with you throughout your life -- or as long as the premiums are up to date.

Term life insurance expires at some predetermined point.

So why wouldn't everyone just buy permanent insurance and then have lots of insurance money to leave to their families at the end of their lives?

Mostly because it's expensive. You're likely better off just investing your money elsewhere.

Permanent insurance is most commonly used to minimize estate taxes. Most people don't have to worry about estate taxes. This year they only kick in on estates worth over $3.5 million. Next year the taxes disappear altogether, though in 2011 they revert back to the $1 million threshold level used years ago.

But for people who need some cash to pay the taxman on their way into the afterlife, permanent insurance is one way to go.

Permanent insurance might make sense in some other instances, too. But such a purchase is subjective and based on the insured's emotions and financial situation.

It all comes down to planning. Depending on your family structure, your approach to life insurance will be different from those of others.

Life insurance for …
  1. Single people
  2. Married with kids
  3. Married with no kids
  4. Domestic partners
  5. Single parents
  6. Grandparents


Being unmarried doesn't equal a lonely, sad-sack existence, and it doesn't mean you should automatically skip life insurance.

Single people may want to have life insurance for many reasons, from providing for elderly parents who need caretaking to covering debts amassed throughout life.

If someone has co-signed a loan for you, for instance, for education or a home, they'll be on the hook for the loan in the event of your untimely demise. With insurance, you can leave on good terms.

Life insurance can also be used to pay for your funeral costs should anything untoward happen.

Planning for your own funeral may seem morbid and dour, but with life insurance, you win if the policy doesn't pay off.

"The good news is you're still alive," says Russell Fox, a Certified Financial Planner with Apex Wealth Management Group in Oxnard, Calif.

Of course, the insurance company also wins.

The type of insurance you purchase is purely a personal decision based on your health and income. Term insurance is a good bet for covering all your bases unless circumstances dictate having coverage for your entire life.

Don't forget that many employers offer group term insurance as part of their benefits package, so a person with minimal life insurance needs may have their obligations met with just that amount of coverage.

"If they have that basic type of coverage, it could add piece of mind," says Fox.

Group term life insurance could be less expensive than an individual policy, so it may be a good option. One potential drawback: It may not be convertible to an individual policy should you leave the job.

Married with kids

When a couple becomes three or more by the addition of a whippersnapper or two, they typically begin thinking of life insurance -- usually term insurance.

Term insurance is perfect for families because it allows parents to decide how long they need to be covered. That might be, for instance, through their children's college tenure.

"Term insurance is very inexpensive in its purest form. It's an inexpensive way to accumulate a lot of life insurance," says Certified Financial Planner Adam Sherman, president of Firstrust Financial Resources in Philadelphia.


The alternative, some form of permanent insurance -- whether whole life, universal or variable life -- is equally useful for providing a death benefit to survivors, but it is much more expensive. And not everyone needs insurance for their entire lifetime.

Deciding how much insurance to buy is somewhat subjective but there are easy formulas for narrowing down how much you need.

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