Most people prefer not to think about insurance whenever possible. Almost everyone prefers to avoid mention of life insurance. The Houston Chronicle, however, lays out some of the basic principles behind life insurance and the keys to a cost-effective policy.
While most younger Americans are willing to accept the sense behind health insurance, many see life insurance as a concern for another time when there are children to worry about. Last year, research and consulting group LIMRA released a survey showing life insurance coverage had dropped to a 50 year low, with 30 percent of households having no policy in place. Between 1999 and 2009, the American Council of Life Insurers notes that the the number of policies fell by 3.8 percent.
Life insurance, however, can help protect spouses and family members just as effectively. This is particularly important given the amount of debt many Americans now accrue at a young age, a fact that is often ignored when considering potential expenses after death. Life insurance policies can go toward providing for dependents, but they can also help with debts like mortgages and expenses incurred such as burial.
The strongest argument in favor of investing is the likelihood that many people will eventually invest and the price only ever goes up with age. The Chronicle cites data from accuquote.com suggesting a healthy 35-year-old can get a $250,000 policy for as little as $160 per year, compared to $505 for a 45-year-old or $945 for a 50-year-old.
The key is to purchase a term policy, which can offer low rates for a fixed period, generally for 20 years. Longer-term plans, such as universal or whole life insurance offer benefits for those who pay in and live past certain points. These policies can prove profitable, but policy holders must meet a certain level of investment or face reductions in benefits, leaving the returns on investment constantly at risk.
“Using costly insurance contracts primarily as investment vehicles is generally inferior to purchasing low-cost, term life policies and investing the difference yourself,” Rande Spiegelman, vice president of financial planning for the Schwab Center for Financial Research, told the Chronicle.
Despite the potential benefits and the relatively low cost at young ages, life insurance does not always make sense. Without substantial expenses or vulnerable dependents, a policy can prove an unnecessary complication.