Most everyone I talk to has questions about life insurance. Why would somebody have it? Who should have it? How much?
The primary question is, of course, who needs life insurance? My answer would be anybody of any age, young, old, and anywhere in between.
For an infant or young child, the reason for having life insurance would be for protection of their insurability. They don’t need life insurance as it relates to their death in the near future. If they do die, it’s not a major financial problem for the family. Through the years, however, their health may change. They may have a medical condition, they may join the military. When they get older, they may start on one of the various occupations that makes them uninsurable. Therefore, having a life insurance policy on a child is not a bad idea.
How to Think about Life Insurance
Primarily, life insurance is needed for young parents who have a mortgage and children. That is a very key time when you would have life insurance. The significance of life insurance at that point is to have a policy sufficient to replace one’s income.
Do not necessarily scale your life insurance to covering a debt, or because someone needs money for college or traditional expenses like that. You should really think about the loss of the income of the insured person. So we want to use life insurance to replace that income for a number of years.
I would recommend replacing that income for a minimum of five years and as long as 10 years. So really seven to eight times your annual income is about how much life insurance one should have in these years.
Life Insurance After the Children Are Grown
Why would you need life insurance when your children are grown? Hopefully you’ve been responsible and paid off the house. Why do you need life insurance when you’re 70 years of age, or 80 years of age, or 90 years of age?
That would be because of a number of factors. Number one being long-term care health costs. So what does life insurance have to do with long-term care? Some policies have some riders available related to long-term care costs.
But primarily, what you can use to pay for long-term care costs is current assets. At that point, the life insurance replenishes those assets that had to be spent. For example, if I needed long-term care, my wife might need to spend $100,000 or $200,000 on my care out of our IRA. Now my $200,000 life insurance sends that money back to my wife for her provision when she gets older.
Young, old, or anywhere in between, life insurance has different needs and purposes, but it’s needed. If you have questions, let us know how we can help. Call us at (314) 544-5400 or fill out the form on our contact page to get in touch.
