Sometimes it stinks to be the grown-up. Case
in point: life insurance.
If there's anything worse than thinking about your own death,
it's doing math problems about it. Bring up the topic of life
insurance with a young parent and you're promptly dismissed with
one of two responses-blind confidence or abject guilt. Whether they
own a policy on themselves or not, parents seem to embrace the idea
that they should.
Parents of young children may feel better if they have a
policy, but life insurance is not appropriate or necessary for
every family. The decision to buy life insurance doesn't come down
to numbers alone, but understanding the value of income and assets
goes a long way toward making the right choice.
Imagine a future without you
The idea behind life insurance is that when others depend
on your earning capacity, you want to enable them to continue their
standard of living when you die.
Add up all your family's expenses, and don't forget the
replacement cost of child care if one parent stays at home to care
for very young children. Once you know how much your family needs
on an ongoing basis, look at sources of assets and income, such
Consider how long it would take for your children and the
surviving parent to become self-sufficient. To make the best
choice, you will want to conduct a detailed inventory of your
finances and lifestyle. For that, an objective professional opinion
can be invaluable-even if you have to pay for the advice. (Know
that if you're talking to an insurance agent, you are likely to be
hit with an emotional appeal, and as with most money matters,
feelings only cloud the real issues at stake.)
What expense to consider
It is natural to think of all the years ahead for your
young family, such as how would they maintain the mortgage and
cover the cost of a college education. While long-term needs are
important, think about the short-term expenses, too.
Depending on your circumstances, a policy that covers
short-term expenses may be all you need, or you might want to
provide for your family for years to come.
The life insurance decision can be complicated. If a
policy allows you to believe that everything will be just fine when
you're gone and the expense of the premiums doesn't adversely
affect your lifestyle, the answer is easy. On the other hand, some
can't afford the peace of mind bought by life insurance, and many
don't need it.
Even when the calculations get messy, learning about your
life insurance options is worthy of your time and attention. You
are the grown-up, after all.
Lela Davidson is a former CPA and the author of Blacklisted from the PTA (Jupiter Press, July 2011).
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