By Eileen Alt Powell, The Associated Press
A young couple with children can make good use of a reasonable policy
The last thing most young couples want to think about is buying life insurance. After all, they're just getting started with their lives and already juggling rent or mortgage payments and childcare costs, to say nothing of paying off college loans and credit-card balances. But life insurance can provide a security blanket so that if something happens to a family's bread winner or, increasingly, breadwinners the surviving spouse and their children are protected from financial hardship. Deciding if you need coverage isn't difficult, says money expert Beth Kobliner in her book "Get a Financial Life." "If you have kids (or anyone else financially dependent on you), you need it," Kobliner says. "If you'remarried without kids and your spouse could handle the basic housing and living expenses without you, you don't need it." (It should go without saying that if you're single with no dependents, you don't need it either.) If you're in the "need it" category, doing a bit of research before you buy can save you a lot of money on premiums.
How much Just how much coverage does a family need? The rule of thumb has been to buy a policy that would pay out six to eight times your annual income if you should die. The idea is that this amount would cover a surviving spouse's expenses for a half-dozen years, until he or she has time to adjust. But some families might want even more than the six-to-eight multiple if they want their insurance to cover, say, expensive private schools for the children or to pay off a chunk of a big mortgage. "There are two things you want to take into account: who you love and who you owe," said Herb Perone, a spokesman for the American Council of Life Insurers, a Washington-based trade group. You may find you don't have to pay for all the coverage you want. Many companies provide life insurance as a benefit to employees, generally in the amount of 1 1/2 to 2 times annual salary. That means if you earn $40,000 a year and think you need $240,000 in insurance, your... company policy will take care of the first $60,000 to $80,000.
What kind The next question you have to answer is whether you want term or whole life insurance. Term insurance policies provide life insurance coverage for a specified period, generally for 10 years or more. Whole or universal life policies cover you for as long as you live; they generally have a savings component that you can borrow against or "cash out" in later years. Financial columnist Terry Savage, author of "The Savage Truth on Money," recommends young couples consider starting with term insurance; which is more affordable and then move later to whole life. "Start out with term that would cover immediate expenses," she said during a recent seminar sponsored by the QuickQuote.com insurance Web site. "Later, convert some to cash-value insurance or pick up a separate cash-value policy" that would continue beyond the life of the term life policy.
The price Daniel P. Wager, president and founder of QuickQuote Financial Inc. in Reno, Nev., suggests young families consider buying 20-year level term insurance in which the premium and death benefit amounts are locked in for 20 years. They could couple that with a small, universal life policy if they want added protection, he said. Wager said that a 30-year-old man good health could expect to pay about $270 a year for a 20-year level term policy of $400,000 and $500 for a $100,000 universal life. That compares with a premium of about $3,400 year for a $500,000 universal life policy, he said. "People shouldn't be afraid to overbuy term insurance because it's cheap for what you get," Wager said. He added that as young couples increase their debt, perhaps by trading up from an apartment to a home, they should consider adding to their insurance. Prices for insurance have become very competitive, and there are a number of sites on the Internet where families can do comparison shopping and even purchase policies.