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Cheap life insurance or no insurance

When people do think about insurance and look on the internet, they find themselves bombarded with advice. Much of it is marketing copy designed to sell the policies. The rest is often ill-informed. So this is a chance for some simple, straightforward advice, hopefully putting some of the myths to rest. Let's start with the most asked question, "Do I have enough insurance?" Naturally if you ask anyone whose income depends on selling insurance, you can never have enough. So these people play on your fears. They ask what would happen to your family if you were to die tomorrow? The result could be you spend thousands of dollars in regular payments over the years and, in the end, it's all wasted. As a simple example, you live longer than your partner, you have paid off your mortgage, there are no major debts, and your children have all grown up and are able to manage without help. So why bother to buy insurance?

There are three good reasons. When you are younger and your family is directly relying on the pay you earn, some protection is a good thing. Second, if you have paid off all your debts and have assets worth more than $5 million, insurance pays off the estate tax and avoids the need for your family to sell any of the assets. Third, even though you might not need it, it's always better to buy a universal policy when you are young. If you delay and your health is less good, you may not be able to buy a policy later. Should the policy prove unnecessary, you can sell the policy on the secondary market. Otherwise, you do better to invest your spare cash in long-term investments. That way you get the benefit and avoid paying administrative fees and commissions to the insurer to do it for you.

What about the debts you leave behind? The law is actually on your side. All personal debts die with you unless the liability was joint or there's a guarantor. If the estate is not sufficient to pay off what you owed, the creditors have no remedy against your survivors. The only debt that it would be hard to avoid is the cost of the funeral. If your estate was wiped out, your family would have to find enough to bury you. A policy with enough to cover this amount is a thoughtful gesture. In all this, never forget the social security system. For all America is not Europe, the benefits can be quite substantial, particularly if there are young children.

Finally, never buy life insurance and then forget about it. Your life changes. There can be a marriage followed by divorce. There can be children from different marriages. Your personal needs may change. While it is always desirable to protect those who are depending on you, a regular review of the amount of coverage you have and how much it is costing is good. Ironically, you may find it better to buy cheap life insurance on a term basis but with the right to covert to a universal policy later on. Never go for a single strategy based on one set of assumptions about what will happen in the future. Stay flexible and protect your financial health.

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