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Oct 31 2012 12:00AM

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How much life insurance should I have and what type (term or whole life)? I’m married, no children, gross combined income is about $200,000 of which $110,000 is my income and we do not own a home.


While many experts advise that one should have 7 to 10 times their gross earnings in life insurance, the only accurate method is to perform a “needs analysis”. Once that is done the recommendation would usually be to cover those needs that are expected to last for a quantifiable period of time with term insurance and those that are lifelong with permanent insurance. Term insurance offers an affordable, temporary solution; but is over the long run the most expensive and is engineered to fail as it is unlikely to be there when it is most likely to be needed.  

Without knowing your age and whether you plan to buy a home or start a family, I cannot make an accurate recommendation. However, if you are young, healthy and plan to start a family, I would recommend that you lock in your insurability, with a high quality, participating company, which you can later convert to whole life as your budget allows. Term insurance is so inexpensive that you should, under the previous assumptions, be able to purchase a substantial amount to protect the future. There is a story about skater Scott Hamill’s response after he won his gold to a recommendation that he buy life insurance. He said, “I am young and healthy”. The agent’s response was: “that is exactly why you should apply now”. He later battled cancer. If a family is not in your plans, both of you should determine what each survivor would need to replace the income lost to avoid disruption of your life at a vulnerable time.  

Any type of life insurance for a period of time guarantees to turn pennies into dollars when most needed; whole life and no lapse Universal Life guarantee to do it for your lifetime. Mutual company whole life insurance, which I believe should be included in every well thought out retirement plan, can provide much more – guaranteed tax-sheltered accumulation, accessible cash values for emergencies, retirement values that can be turned into a lifetime stream of income and, if properly set-up, a self-completing plan in the event of a disability.

If you were to come to me for financial planning the very first thing that I would want to make sure you have protected is your ability to earn. If you were to have been permanently disabled yesterday, your lost earnings over 25 years at 3% would be over four million dollars.  This is your greatest vulnerability. If you have not protected it, you should speak with a financial planner or reputable insurance agent. 

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