Life Insurance

By Carrie Schwab-Pomerantz

December 14, 2011 5 min read

Dear Carrie: I am a single 43-year-old woman, and at the advice of my insurance agent, I've been carrying a term life insurance policy since age 22. I also participate in my company's life insurance plan, which is just a few dollars per month. Does it really make sense for me to continue paying for these policies, especially seeing as I don't have any children? -- A Reader

Dear Reader: Most people recognize the importance of insurance, particularly when it comes to protecting their property and their health. When we buy insurance, we're willing to pay a relatively small amount now to insure against a substantial loss in the future. If the premium is fairly priced and the terms of the policy are reasonable, it's a smart trade-off, providing us with protection against losses that are too big to bear.

Everyone needs health insurance. Everyone with a home needs homeowners insurance. And everyone with a car needs automobile insurance. But not everyone needs life insurance, and though I don't know all the details of your situation, of course, if you're single and childless, you may be one of those who don't. (And a good insurance agent should have pointed this out.)

After all, when you insure your life, you're really insuring on behalf of other people -- your beneficiaries, e.g., spouses, children and other relatives who may rely on your income. Life insurance at its purest -- I'm thinking of straightforward term life insurance policies here, which are simple, relatively inexpensive and quite effective -- is a way to make sure that if you die, the benefit will help support your family.

But if you're single and childless, unless you have other family members you support, there's little reason for you to have life insurance, regardless of how inexpensive it might be. I would instead think about saving those premium dollars and investing in your future. Increase your 401(k) contribution, or start investing in a taxable account. Consider buying insurance that might have more value for you, such as a disability policy or possibly a long-term care policy.

I'll add just a word about what are called "whole-life policies," which combine a life insurance benefit with an investment component in order to potentially build some wealth over the years in which you pay for insurance. But these policies tend to be expensive and, if you really don't need the life insurance benefit, are probably not appropriate for you. You could simply invest for yourself to build wealth.

On the other hand, disability and long-term care insurance might make sense for you. For most people, their earning power is their most valuable asset, and if, for some reason, you could not do your job, how would you live? Even short-term disability could be devastating; imagine, for example, that an accident or illness prevented you from working for three months. Would you be able to pay your bills?

Your employer may offer disability insurance at a reasonable cost. Or you can shop around for an individual policy and more customized coverage. For example, look into an "own occupation" policy that covers you for your specific job. If you're a physical therapist, for example, and can't do that kind of work, you would still collect benefits and not be forced into taking just any job.

Long-term care insurance is designed to pay for help with the activities of daily living if you have a debilitating illness or an accident. In-home care can be expensive, sometimes ruinously so, and the fact is that most people older than 65 will need some type of LTC insurance at some point in their lives. The features, benefits and costs of LTC insurance vary widely, so you definitely want to shop around. But it's cheaper when you're young, so now might be a good time to look into it.

Insurance is an important part of virtually everyone's personal financial strategy, but you should weigh the costs against the benefits. In your case, obviously, the cost of your life insurance is the premium, and the benefit is, well, what? To make your estate bigger? For the benefit of whom? If you don't have a solid justification, it's time to think about terminating the policy. Thanks for the question, and good luck!

Carrie Schwab-Pomerantz's column, "Ask Carrie," can be found at creators.com.

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