subject: The Skinny On Term Life Insurance [print this page] The Skinny On Term Life Insurance
As you begin saving for retirement, you need to consider whether term life insurance should be included in your budget. Yes, this will cut down on the amount you can save, but it is a good thing to have in some circumstances, as you will see in a moment.
What is term life insurance? It's a ten to thirty (most people go with twenty) year policy that you pay into monthly. It guarantees a payout to the beneficiaries if you die. For example, you might pay $40 a month for a $500,000 policy. The general recommendation is that you carry a policy that is five to ten times your annual income.
Do you need such a policy? Well, if you're single with no kids, probably not. But if you are either married and/or have children, and are the family breadwinner, owning a term life insurance policy is one of the most responsible things you can do.
Let's say a 45-year-old man is killed in a car accident, leaving a wife and three kids behind. If he has a $500K term policy in place, his widow will be able to put the money into a good growth stock mutual fund, making an average of a ten to twelve percent return every year.
Thus, she will be able to pull out up to eight percent of the value every year in order to cover living expenses. Most likely, the fund value will continue to grow in value. In other words, she won't have to worry about depleting any savings or retirement in order to take care of her children.
What if there are two wage-earners in the family? Do both need term life? What about a stay-at-home-mom whose husband carries a policy?
The answer is debatable, and a decision that should be made after much consideration and discussion between the spouses. If you already have a large nest egg that would be the equivalent of a term life policy value for one spouse, then it is probably enough to have just the main breadwinner carry a policy. If you are in debt, and/or have little in savings or retirement investments, you may consider carrying a policy on both spouses - if you can afford it.
Term life insurance is important, and worth the extra small monthly expense. You never know what tomorrow will bring.
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