insurance

Life insurance: Who needs it?

David C. Marlett, Ph.D. CPCULife insurance is a topic that makes some people uncomfortable. Few want to think about the inevitability of graduating from this world to the great beyond.

Yet life insurance is an essential tool for keeping loved ones financially secure after death.

Those with dependents are foolish if they don't at least consider purchasing life insurance, says David Marlett, chair of the Department of Finance, Banking and Insurance at Appalachian State University in Boone, N.C.

In the following interview, Marlett shares his thoughts about who should buy life insurance and who might be OK skipping it. He also offers tips for zeroing in on exactly how much coverage you might need.

Life insurance is a product that sometimes confuses and intimidates people. In a nutshell, who needs this insurance, and who does not?

Anyone with dependents should strongly consider purchasing life insurance. Dependents could include a spouse, child or even elderly parents in your care. Young, single people without children do not have a significant need for life insurance.

Life insurance basically can be divided into two types: temporary and permanent. Do you have some tips for determining which product is right for you?

For most people, temporary (commonly called "term") insurance will meet their needs. It is much less expensive than permanent life insurance. Term insurance is basically a commodity, and you can purchase (it) from a wide range of highly rated insurers. It is also simple and easy to understand.

How can people best determine the amount of coverage they need?

Typically, it is based on how much income your dependents will need if you are no longer able to support (them) with your income. You will often see rules of thumb that say you should purchase five, seven, even 10 times your annual income. This really oversimplifies the process, though, and neglects to include very important factors.

For example, how old are your dependents? Is your spouse employed? What are your debts and financial needs? There are several excellent online calculators that provide a more thorough needs analysis that can guide the consumer to the appropriate coverage amount.

Do single people need life insurance?

If they have dependents, they have a very significant need for life insurance.

Once the children have flown the nest, does it make sense to drop life insurance? What are the benefits and risks of doing so?

It could make sense to do this. However, the spouse may have a justified concern. Term insurance becomes more expensive as you get older, and you may decide to either eliminate or reduce the coverage as your needs decrease. This will save premium dollars. Your spouse, though, may still want you to keep at least a portion of the life insurance to protect him (or) her.

Ideally, your savings increase and your debts decrease as you age, so you have (a) reduced need for life insurance. However, these days, that may not be the case.

Furthermore, once kids leave the nest, that doesn't mean they are not coming back. They could easily become dependents again, and it may be difficult to purchase new life insurance after you have canceled an older policy that you applied for when you were younger and healthy.

What are some of the most exciting innovations you are seeing in terms of life insurance?

Actually, I prefer to keep it basic and simple. Bells and whistles that are added on just create clutter and add-in fees.

We would like to thank David Marlett, chair of the Department of Finance, Banking and Insurance at Appalachian State University in Boone, N.C., for his insights.

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