When it Comes to Term Insurance . . .
HOW MUCH IS ENOUGH?

Recently my daughter changed jobs, and she e-mailed her old dad for some fatherly/lawyerly advice about her benefits. She was being offered TERM life insurance equal to her annual salary, and she was also offered the opportunity to buy additional coverage equal to certain multiples of her annual salary.

Now I love it when these e-mails arrive, because it makes me feel as if I am as important a source of information and advice as Google. And she is smart enough not to tell me she already had looked at Google and gotten her answer. She wanted my advice, and whether she took it or not was unimportant.

After we talked about her options, it came to light that she was being offered this life insurance coverage without having to answer any health questions or having to take a physical. To me that was a key element for her, because she does have a health history.

The cost of the coverage was an issue for her, as it always is when you are young and trying to keep a car on the road, a house around you, and clothes on your back. And who wouldn’t think twice about spending the Friday night bar bill on something so goofy as a life insurance premium that gives you nothing in return, except the knowledge that your beneficiary will inherit money from you if you die.

The coverage offered was term insurance, which is the stuff that does not gain any cash value. It is simply a friendly wager between you and your insurance company that you will die before the next year’s premium is due.

Now we arrived at the core issue: How much is enough? If you are in your early twenties, single and childless, you may not think you need any life insurance. Once that thirtieth birthday rolls around, and you are married with a child or two, and maybe a health situation rears its head, you will start to think differently. And if you are in your forties, the mother of teens with a husband whose career is solid, how much insurance do you think you need? And when your fifties are upon you, and those babies are asking to borrow the car to tour a college campus, you think a lot differently.

By your sixties, you may think you can cut back again on coverage because all those issues you had considered when you bought your policy years ago have resolved themselves. And when you get to your seventies, unless you are trying to cover your funeral and death taxes, or are trying to secure some type of legacy for your family, you usually get rid of most, if not all of your life insurance.

As you can see, the answer to the core question is very different at each stage of life. The twenty-something may not want or need any, but when he or she gets to forty and realizes they should have some, maybe they can’t get it because of that illness or condition they contracted in their thirties.

Buying insurance requires a little bit of a crystal ball approach. You kind of need to know what is going to happen down the road. You may want to buy enough to replace your earnings, which means you should be looking at eight, ten or even twelve times your annual salary in coverage. But, what about the cost? You need the most coverage when you can least afford it. The cost can get pretty high, even if you buy all term coverage, which is traditionally the least expensive coverage.

The life insurance agents answer that question all the time, but they usually want you to look at other products that gain cash value. Not just because they earn more fees, but because for many people, their only savings vehicle is the investment component in their life insurance policy.

Since I do not sell these products, or have a license to do so, my daughter and I decided that even though I had opinions, they were not nearly as valuable as the advice she could get from a seasoned professional. We decided that she would invest an hour talking to a local insurance agent who could help her understand what her money would buy.

I don’t recall if it was Groucho Marx or George Burns who said, “If I had known I would live this long, I might have taken better care of myself.” If I had known I would have lived to this age, I might not have bought any life insurance. As a little kid, when I went to bed I always said my prayers, and one of the phrases that has haunted me all these years is the part that goes, “And if I should die before I wake...” That scared me then almost as much as it scares me now, but as it is, I can go to bed each night knowing that if I don’t wake up in the morning, my family is well protected.

Christopher M. Abernethy has been practicing law in Hampton Township since 1976. He focuses on elder law, which includes wills, trusts, powers of attorney, living wills, and probate matters. He also is proficient in all aspects of real estate law and business law. He is a member of the National Association of Elder Law Attorneys, and the AARP Legal Services Network. He can be reached at 412-486-6624 or by email at cabernethy@aaylaw.com.