Do you really need life insurance?

Word on the street is, not only will the executives of Goldman Sachs be giving up their bonuses this year. Your family may be giving up year-end bonuses and even some compensation for the coming year, as companies are struggling to survive this economic crisis.

As you review your budget for 2009 household expenses, consider how much you're paying for life insurance. The wrong type or amount of insurance might be needlessly draining your budget. The right type and amount of insurance can suit your needs and your family budget.

Do I need life insurance?
To answer this question, consider whether or not you have dependents who rely on you financially. Also consider any liabilities that may transfer to another person upon your death. Determine what assets will be available to your survivors. Will there be a Social Security Survivor Benefit and if so, how much? (www.socialsecurity.gov) Does your employer provide group term life insurance? Will your investment and retirement accounts be available to support your family's living expenses? Will there be other sources of income?

How much life insurance do I need?
For parents, I generally recommend a policy that will replace income until the youngest child graduates from college. If your college savings plans are already fully funded, you might consider purchasing insurance that will replace your income for 15 to 20 years or until your family is financially independent. There are a number of life insurance calculators available on-line. I found this one to be particularly thorough, http://www.lifehappens.org/life-insurance/life-calculator.

Term vs. permanent
Term life insurance policies are relatively inexpensive. They provide death benefits only if you die within the term of the policy. If you live past the term, the policy pays nothing. Clients often express their dismay with paying for something that we hope will never provide a benefit. I remind them that we do the same when we pay for automobile, homeowner's, and disability insurance. The insurance provides us with peace of mind that our family will be cared for if the need arises. Term premiums may be fixed for the entire term of the policy.

Permanent life insurance policies are life policies combined with a savings program. They are significantly more expensive than term policies and may even include an investment component. Universal life policies may offer flexible premiums. It is important to read the fine print of your contract to determine how much you're actually paying for these types of policies. A percent here and there adds up quickly.

Term life insurance is a favorite among financial planners, including myself, because it's the most cost-effective protection available. This already-good deal has become even cheaper in recent years as insurers have been lowering rates because we are living longer. To get an idea of how much you might pay for a term policy visit www.accuquote.com.

Final considerations
If you have term life insurance through your employer, you may still want to do some research on individual policies. You may be better off purchasing a life insurance policy to supplement or even replace your employer group policy.

Reason being, your individual policy will be portable. It is yours to keep, whether or not you continue to be employed. If a terminal illness or other health conditions leave you unemployed and uninsurable, your group policy may leave your family in dire financial straits.

If you already have permanent life insurance, be sure to contact a qualified financial advisor and a tax professional about the implications of surrendering your policy.