Gardner: When do I need life insurance? (column)
Josh writes: My wife and I got married three years ago. We have decided to start a family and Sarah thinks I need to get life insurance. We both work and she plans to continue working after the birth of our child. It seems like we should wait until we actually have a family before we spend money on life insurance. What do you recommend?
Josh, I understand your reservations about life insurance because you and your wife both work, but I recommend you do your research now and purchase a policy. Once your wife becomes pregnant, you will have a dependent for whom you are financially responsible. After you find out, you both will be focused on doctor appointments, size and practicality of your current home, the baby’s nursery and day care while insurance gets put on the back burner. If you die prematurely, you want to have plans in place to provide for your family. This includes having a mortgage-free home, creating an income stream to cover all bills and expenses while your children are growing up and setting up a college fund. Sounds like a lot of money, doesn’t it? It is. And the larger your family, the more you will need. An experienced and knowledgeable insurance agent can recommend the amount you need. Also, don’t be surprised if your wife decides she wants to stay home with the baby. That means your income must entirely provide for the family’s needs. Unless you are independently wealthy, life insurance is a wonderful way to protect their future. The younger you are and the healthier you are, the less expensive the insurance. I usually recommend term insurance to young families just because it is the least expensive with a low monthly premium payment but it serves their needs. Many employers provide term life insurance, and the cost for this group insurance is usually far less than you would have to pay on your own. Your first step is to talk to your human relations department and find out what they offer. Normally, it is a term policy valued at several times your annual salary. If you are starting a family, buy the maximum available. If you work at a small company that does or are self-employed, it is still possible to get a personal policy for as little as $25 per month depending on the amount, your age, health and recreational activities. This premium amount can be locked in with no increases for as many as 30 years. More than likely a 25-year policy will be sufficient because along the way you may decide you can afford a different kind of policy that has a savings component such as whole life. You will reach a point, usually by retirement, when you have enough money in savings that you are self-insured. That means that your wife will be provided for at your passing. At that point you no longer need the policy, but depending on what kind of assets you have amassed, you may want a more sophisticated policy.
You did not mention it, but another type of insurance you should also seriously consider is disability insurance. It provides partial replacement income if you are unable to work. Hopefully your company has long-term disability insurance but it will not kick in until after a 60 to 90 day short-term disability period. It is very important that you determine if you have this coverage and if you do, that you understand the terms. If you don’t, talk to a reputable insurance agent with an established nationally known firm. No policy will cover more than 80 percent of your income but you can buy a supplemental policy. Keep a disability policy throughout your career until you are financially independent. There is more chance of you sustaining a disabling injury or illness than dying prematurely. Please protect yourself and your family.
Nancy Gardner is a Certified Financial Planner. She and her husband Bill and their dog split their time between Summit and Montgomery County, Texas. Send questions to firstname.lastname@example.org. You will remain anonymous.
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