Insurance Basics: Life Insurance

BOSTON (CBS) - When we buy insurance, we are buying financial protection in case an incident occurs that we cannot afford.

We need insurance, even the wealthiest among us protect their families and their assets with insurance.

Take the time to review your current insurance policies. With a bit of research, you may be able to save hundreds of dollars and keep the same coverage you have.

Let's start with life insurance: life insurance is used primarily to cover the loss of your income stream for your dependents if you should die. There are many other reasons to own life insurance but for young families it's for pure protection.

If you are 40 and single with no dependents you don't need a lot of life insurance, maybe enough to bury you. But if you are 40 and married with 3 small children to educate, a mortgage and a spouse working part-time you need a lot of life insurance.

If you should die tomorrow who or what will provide for your family? You need enough life insurance to cover the loss of your income to your family. That could be $1 million or more of life insurance.

Spend some time doing a needs analysis to get a more accurate picture of the dollars needed.

There are many different kinds of life insurance policies; Whole Life, Universal Life, Variable Universal Life and Term Life insurance.

My personal preference is to buy term life insurance for you are buying just life insurance. Term life insurance is inexpensive. Life insurance premiums have actually decreased because the insurance industry has figured out that people are living longer.

The cost of term insurance does increase every year unless you buy a level term policy that may run for 10, 20 or 30 years. Level term is a bit more expensive in the beginning but you will pay the same premium until it expires. Buying a 20-year term life insurance policy may give you the coverage you need if you have a young family and want to provide protection until they are in college.

One more thing: A listener wrote in with a suggestion that as a parent you often cosign for very large education loans for your kids. And if something should happen to your child you may be on the hook for upwards of $250,000.

His suggestion. Buy some term life insurance for the kid. At such a young age, it is very cheap. Average tuition for medical school is $54,000 a year. Multiple that times four. Or law school with a tuition of $62,000. Multiple that by 3 years. None of these numbers include living expenses and health care.

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You can hear Dee Lee's expert financial advice on WBZ NewsRadio 1030 each weekday at 1:55 p.m., 3:55 p.m., and 7:55 p.m.

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