Tuesday, November 6, 2007

Tips for deciding how long you’ll need life insurance

How much? How long? Those are the two biggest questions when it comes to buying life insurance. This article gives you some tips for answering the How Long question. See also “Tips for deciding how much life insurance you need.”

By Mary Pollman – SelectQuote

It’s not smart to have life insurance any longer than you need to. Just as you don’t keep buying auto insurance after you’ve sold your last car, you don’t keep paying for life insurance after your last dependent is out of the house – or after you have investment gains or other ways to take care of him or her.

Being objective about life insurance
But like the question of How Much (See “Tips for deciding how much life insurance you need”), the question of How Long can be hard to answer objectively. Let’s say your daughter is your only dependent. Can you drop your policy in 15 years when she graduates from college? To many of us, that sounds a bit abrupt. So maybe you buy a 20-year life insurance policy to make sure she gets through graduate school and ‘finds herself’ financially. Good idea. But it’s usually a bad idea to keep full coverage for many years after your kids are supporting themselves.

Plenty of savings? You may not need life insurance.
You should project where your savings and your investment portfolio are going when you think about how long you’ll need life insurance. When you’re farthest from your savings goal, you should have the most life insurance. When your savings goal is met, you can cut the life insurance back – and if you’ve been very successful, you may not need life insurance at all.

How long if the policy is for business?
What if you’re buying life insurance for something other than traditional family protection? If you’re buying it for business reasons, your long-term planning should make it obvious how long the insurance is necessary.

Here’s an example. Let’s assume you’re a landscape architect. You have a partner, and you’ve discussed what is called a “buy-sell.” You have each bought life insurance policies covering the other.

If your partner dies, you use the proceeds of the policy payout to buy out his family’s interest in the business. If you die first, your partner does the same thing.

You can peg the policy amounts to the value of the business. And you can decide how long the policy should last by deciding how long you’re going to care about the business.

Let’s say your partner dies in 15 years, when you’re 60. Just as you originally planned, you use the policy proceeds for the buyout. But if he dies in 25 years, you’re 70 and retired. Now maybe you’re perfectly happy letting his daughter have his share of the business. You really ceased to need the life insurance policy about five years ago, so that’s when it should have ended.

Permanent life insurance
Only in a few rare cases is the answer to “How long should I own life insurance?” “As long as you possibly can.”

If you have a spouse or child with serious, long-term health problems that may bankrupt them, no matter how big a savings nest egg you can pass on, you probably need permanent life insurance – life insurance that lasts as long as you live.* Or if you want to provide funds to pay Estate Taxes, permanent life insurance could be beneficial.

‘How long do I need life insurance’ can be a complicated question to answer. And a mistake can be really expensive. So talk to a good life insurance agent. Their advice won’t add a dime to your premium. And it may save you a pretty penny.

* “Permanent” life insurance policies mature and pay out at some point – typically when you’re age 90 or age 100. If you live that long, they’re not “permanent.”

About the author. Mary Pollman, CLU, has been writing about life insurance, long-term care insurance and annuities for more than 20 years. She has contributed to insurance publications, websites, consumer product literature and agent training. Mary held senior management positions in communications and marketing with two life insurance companies. She is an editorial advisor to SelectQuote.

“How long” is an important question, especially with term life insurance. SelectQuote has the experience and tools to help you come up with a realistic answer. Whether you need 10-, 15-, 20- or 30-year term life insurance, a SelectQuote Licensed Expert can show you exceptional options from highly rated life insurance companies. Call us today, toll-free at 1-888-739-7965 . Or go to our website, www.selectquote.com/home9 .

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