Many people have probably seen the Gerber baby commercial telling parents what a good “investment” their whole life policy for babies is. First of all, life insurance is not meant to be an investment, and secondly, why would a baby/child even need life insurance?
Life insurance is meant to replace the income of the insured person in case they die in order to take care of their family. A child does not provide any income to their family and therefore does not need to be insured. In the event of an untimely death of a child, there will be funeral expenses but parents should have adequate savings to pay for that.
You also do not need life insurance if you’re single and have no children or dependents relying on your income to survive. Once again, when you die, you will have funeral expenses but with no spouse or children left behind, there really is nobody to benefit from your insurance distribution.
The prime candidates for life insurance are young families. Both spouses should each have their own term life policy. To determine how long of a term, you need to plan on when you will have enough money to be self-insured and no longer need the policy.
An example is a husband and wife who are 30 years old and have 2 children. They save every year for retirement and know they will be able to have a large nest egg by the time they are 60. They should get a 30-year term life insurance policy. This means they will be covered for 30 years until they’re 60 years old, at which point they will have saved enough money to take care of their spouse in case one of them were to pass away. At this point, their policy will expire and they will no longer be covered by life insurance, which is fine since they have saved enough of their own money. What about their kids? You should only carry life insurance to cover your children as long as 1.) you aren’t self-insured yet and 2.) they are still living with you and can’t yet support themselves.
Many people just buy life insurance without thinking about the real reason for it. Many insurance agents will try to get you to purchase whole-life, cash value, and universal life. These policies carry the highest commissions for the agents and the highest premiums for you, the customer. Despite how great they may seem, they really are not a good idea. Once again, the cheapest and best life insurance policy is term life.
If you’re considering one of the “no-no” policies mentioned above for investing and saving purposes, do not invest with an insurance company. Just get the term life and invest what you would have been paying in premiums on an expensive whole-life policy into a mutual fund or retirement account where you have control of your investments and money.