It’s time to stop simply thinking about life insurance and start taking action to acquire the coverage you need. But first, you need to gather information to make an informed decision.
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Life insurance isn’t your typical dinner conversation. In fact, there’s a good chance you don’t think about your coverage (or lack thereof) on a daily, weekly, or even monthly basis.
But I bet you do think about your other investments, such as stocks, bonds, and real estate, quite frequently. You know that all of these commitments require careful risk management. Stocks are riskier than bonds, for example, and real estate carries multiple risks. Indeed, there are risks in all of your financial affairs.
Insurance is one way to mitigate these risks, including the biggest risk of all — your life. If something happens to you, what happens to the people you love? These questions can stir up a lot of unpleasant emotions, but luckily, there are rational ways to think about life insurance that take the emotional guesswork out of it.
When Is the Time Right?
For many men, life insurance isn’t top-of-mind, but there are key life events that tend to trigger thoughts of life insurance, including:
- When you land your first job. This is probably the first time you’ll think about life insurance. Oftentimes, group life policies are an option when you sign up for your benefits package. Many companies even provide free coverage at an amount that’s equal to your annual salary or a multiple of your salary. Additionally, you may have the option to pay for additional coverage. This is a good option to consider even if no one relies on you for financial support. And it’s very cheap — a few bucks per paycheck can accrue $100,000 or more in additional coverage.
- When you get married. The idea of life insurance may cross your mind as your prepare for marriage and realize that your spouse might not be able to pay all the bills without you.
- When you start a family. Life insurance discussions often resurface when couples begin having children. I often hear from parents going on vacation and leaving their children with the grandparents. What happens if something happens to us?
- When something bad happens. Unfortunately, you’ll probably think about life insurance after a tragedy. For example, if a good friend with a family unexpectedly dies, you might find yourself wondering whether he had life insurance.
Each of these events reminds you that a loved one — whether that’s a spouse, parent, or child — is financially dependent on you. And without your regular paycheck, their lives will never be the same.
Do Your Homework
It’s time to stop simply thinking about life insurance and start taking action to acquire the coverage you need. But first, you need to gather information to make an informed decision.
Talk to your friends about the coverage they have, or ask an accountant or insurance agent you trust for guidance. Remember to balance their advice with information from outside sources. Look toward high-quality publications like Kiplinger or life insurance websites. After reading a few articles, you can typically tell whether a website is simply trying to sell you something or providing valuable information.
Here’s a thought process to follow:
- Assess your need for life insurance. Does someone rely on you for financial support? Use online calculators to determine your need, or create a spreadsheet to capture your income, assets (e.g., investments, home equity, and savings), and debts (e.g., mortgage, student loans, and credit cards).
- Determine your goals. What are you trying to accomplish with life insurance? Some examples include leaving enough money to cover your income for the next 10 years, paying off your mortgage, or covering college tuition for your children.
- Calculate what you have. Figure out whether your current assets will cover those needs. If not, what’s the gap? That’s the amount of coverage you should consider.
- Learn the types of insurance. You can buy term, whole life, or universal life. Most people will start with a term policy, which is cheaper. Plenty of sites explain these options, so use your online resources.
- Compare rates. Research the cost of a term policy and the differences between 10-, 20-, and 30-year term policies. You could also see how much more permanent insurance would be. Obviously, the premium must fit your budget.
Most people I consult with involve their partners in the decision, and why not? They’re another pair of eyes and another brain to help make sense of it all.
Many times, the wife decides how much coverage her husband or boyfriend should get since she’s the one who will be left behind. She may also have a different perspective on the amount that would make her comfortable. Do the research and shopping together — reviewing rates, your budget, your assets, and your liabilities. Then, come to a joint decision based on what suits you and your family.
While I recommend a rational approach to this important decision, I recognize that there’s an emotional component to it, as well. The important thing is that you need to feel comfortable with your decision even if the calculations and professionals are telling you something different. After all, insurance exists to ease our worries.
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Photo: andrewrennie/Flickr
