Clark Your Life: Buying life insurance

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Life insurance
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It’s not something most people really like to think or talk about, but anyone who has a financial dependent should consider buying life insurance if they don’t have the assets available to cover their dependent’s financial needs in the event of their death.

There are some major events that create financial dependence and may justify the purchase of life insurance. These events include:

  1. Taking on unsecured debt with a co-signer
  2. Taking on secured debt with a co-signer
  3. Marriage
  4. Having a child

Why term life insurance is the way to go

Too often, we’re sold insurance products with massive commissions and a high cost. That’s a formula for failure when you have to pay the premium, and it sets too much of us up for a lapse in coverage.

A report found that 25% of people who buy life insurance stop paying on the policy in the first three years. By the 10-year mark, it’s almost 50% of us who quit paying. So you pay all that money to wind up with a big, fat goose egg.

What you need is a policy that’s easy to buy, easy to own and cheap!

Money expert Clark Howard recommends what’s called level term insurance.

“Level term” means you pay one flat rate year after year for the length of the policy. This policy will replace your income should you die prematurely.

You buy it for periods of 20 or 30 years and the premium stays the same during the life of the policy.

Buying what’s called “term life insurance” is simple and costs practically no money at all. SmartMoney reports that a 45-year old man can get a $500,000 level term policy with a coverage period of 20 years and only pay about $50 a month.

Women’s coverage is even cheaper because they generally go to the doctor and take care of themselves! So if the stay-at-home spouse is a woman, you generally want to buy a level term policy for 15 or 20 years, depending on the age of your children.

How do I buy term life insurance?

Buying what’s called term life insurance is simple and costs practically no money at all at the outset.

By shopping online, you avoid an insurance salesperson trying to upsell you from level term coverage to whole life.

If you’re not into the internet, that’s fine too. Go buy a money magazine and you’ll see ad after ad for companies selling life insurance.

Certain health conditions make insurance more expensive or even unavailable. If you have such a condition, you’re what’s known as “rated” in the industry, which means you will pay more money than the example for the 45-year-old guy above.

RELATED: 5 life insurance questions you’re too embarrassed to ask

How much coverage should I buy?

When it comes to the question of how much you should buy, people can get crazy with all kinds of complicated formulas. Clark like to keep it simple and says that generally you should buy six to 10 times your annual income.

Should I get life insurance through work?

This is a popular option for a lot of people. In fact, almost half of people who insurance participate in a group policy through their employer. The average coverage is $236,000, which is about 2.6-times income replacement.

The benefit of buying into a group policy usually means that you don’t have to pass medical underwriting. Another possible benefit is portability of benefits.

Portability of benefits means you can sometimes continue your policy even if you leave your employer — so long as you are willing to pay the full cost of the premiums.

RELATED: Life insurance: Your 7 most common questions answered

Should I buy whole life insurance?

Whole life is a type of permanent life insurance. Most people who agree to buy this kind of insurance regret it sooner or later. Here’s why.

RELATED: 5 insurance policies you shouldn’t waste your money on

How do I locate a lost life insurance policy?

The Life Insurance Policy Locator Service now allows you to run a nationwide search for any insurance policies or annuities that may be out there in the name of the deceased. You have to be the designated beneficiary or legal representative of the deceased to use this service.

As a general rule, you’ll need the deceased’s full name (including maiden name for a married individual) and Social Security number just to do a search through these sites. Then to actually claim a policy’s benefits, you’ll need a copy of the death certificate.

It can take up to 90 days for an insurance company to respond to your request for information.

If you run into any problems, your best bet is to contact your state insurance department and ask about the process you need to go through. That’s because even though this free tool from the NAIC is national in scope, insurance is regulated at the state level.

RELATED: How to locate a lost life insurance policy

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