February 26, 2009

40% of us need to go buy some life insurance

About 40% of Americans either have no life insurance at all or have lower coverage than needed.

Too many Americans have no life insurance at all. From this study: "Twenty-four million U.S. households (22 percent) have no life insurance protection at all." Then this article says that one in 3 Americans has no life insurance. In addition to many families not having any insurance many families have too little. The study also found that 40 percent of people with insurance felt they were undercovered and that the gap in coverage averaged $200,000.

For those who are undercovered there are a number of reasons they don't go buy more. 3/4 of the people felt insurance was too expensive. 1/2 feel its difficult to decide how much coverage is necessary, 1/2 admit they simply procrastinate and 1 in 5 underinsured people don't buy more coverage because they consider it unpleasant to think about dying. Consider if you pass away and your family is left with little or no income and debts and bills to pay. Are any of these reasons people gave good enough reasons to risk letting that happen to their families? Not in my book.

If you are uninsured or underinsured then you should make a priority to go purchase life insurance and/or increase your policy.

Basic steps to take to insure yourself adequately:

Step 1: Figure out how much insurance you need for each adult. Basically you need to make sure your family is covered in the case of a death. Its ideal for the amount to cover them indefinitely. At minimum you should make sure that the life of dependents is covered adequately. If both spouses work then both should be insured. If one spouse stays at home then they should be insured to cover potential child care costs and other costs that would happen if they weren't around. If you have difficulty figuring an exact amount to get then don't let paralysis over the decision keep you from buying. You can start by simply getting $250,000 or take your salary and multiply by 10. This may not be the perfect amount but it will get you started. Having $250,000 in insurance or 10x your salary is better than having no insurance and procrastinating over indecision on how much to have.

Step 2: Decide on type of insurance and policy length. I definitely prefer Term life policy over a cash value or whole life. I've yet to see anything that convinces me that whole life insurance is a good deal and the premiums are pretty high. For the policy length this will depend on your life situation. If you're younger with young children then a longer term would be better. ON the other hand if you're in your 40-50's and have teenage or grown children then a shorter term would be OK.

Step 3: Shop around. If you're working and your employer offers a group policy then you can check into that to see how their rates are. You can also do some web surfing and find some online quotes. Quick Quote gives quotes from multiple vendors without asking for all your contact info (so they won't be calling, writing or otherwise harassing you).

What if you can't afford it?

I know for many people its easier said than done to go out and spend $250-$500 extra each year on insurance. If you find yourself without extra money to spend on insurance then start by looking at everything else you spend on and honestly prioritize them compared to life insurance. Dont' look at it as $300 being a lot of money, but look at it as where can you cut $25 a month in less important things.

Say you currently have $250k policy and would really like to up it to $500k. Your $250k coverage runs $180 a year but $500k coverage would be $120 more. Thats $15 a month. The cost of a subscription to HBO or eating out lunch 1-3 times a month will be $15 a month. Are a couple meals out more or less important than adequate insurance?

As I discussed before in How much does term life insurance cost?, term insurance is relatively affordable. Someone in their 30's can get 20 year term policy for $500,000 for as little as $245 a year. But if you can't afford that then consider a lower amount or a shorter term.

If you need to stretch your insurance dollars further then you could consider getting a shorter term policy. A 20 year term is generally better but I'd rather have adequate coverage for 10 years than be underinsured for 20 years. If you can only afford 10 year term today then I'd go with that and then look to trying to expand your coverage to 20 year term in the future as soon as you can afford it.

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