Insurance to Cover Income Upon Death

There's a common misconception about insurance for covering death. Most financial advisors would advise that the older you get, the more you need death insurance, because you are likely to die the older you get. It may benefit them because the more premium you pay, the more commission they earn. For you as the consumer, is that really the best way to go? Remember, too much unnecessary insurance is a cost to you, and it may not be something that you would like to spend on.

My opinion is that the coverage for death requires only a decreasing term insurance. The reason is extremely simple.

Take me as an example. I am now 30, and I plan to retire at 60; which gives me long period of 30 years to earn my living. Let's suppose that necessary expenses for household amount up to $1,000 on a monthly basis. If someone up there decides that I should lift off and meet him this moment, I will be unable to provide for this expense for the next 30 years for my family. Now, that amounts to $1,000 x 12 months x 30 years = $360,000 in total. Take into account inflation of 2.0% per annum, you will need a total of $508,553 coverage. But if up-there decides you should join the clouds or crowds 10 years later, you will only need $377,156 to cover those expenses.

Have a look at the following chart to better understand my point.



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I hope you understood the chart. It simply says that the later you get promoted to wear that golden ring above your head, and that pair of white wings on your back, the less you need to cover your family. A policy that does that is called a decreasing term insurance. It's cheaper than a level term insurance, and it's definitely much cheaper than one that comes with cash-value at the end of maturity. But that isn't all. Remember, you should be setting aside savings every year? The beauty of your savings is that it can help form part of that coverage! If you set aside some $18,000 every year and have those savings grow at about 3.0% annually, you end up requiring a shorter period from your insurance policies.



I have one that covers me for about $100,000. It's nothing spectacular, but I have another plan that covers me for more. But I will talk about in another post.

Oh, please don't take my word for it. Read up on both sides of the story before you make the important decision for your family. Here are some great sites to visit: The Motley Fool, Insurance.com.

It's always good to Be Prepared.