September is National Life Insurance Month, and a Wisconsin-based financial planner said most people are in the wrong about life insurance.
Certified financial planner Kevin McKinley, of McKinley Money in Eau Claire, said people either have too little, too much, the wrong kind, are overpaying, or bought it from the wrong place.
“The goal is to make whoever is left after you’re gone financially independent,” said McKinley, on Tuesday’s edition of "On Your Money."
McKinley said a policy should be based on what a person spends each month, along with large planned expenses, such as a children’s college education. For example, McKinley said take a family that spends $4,000 a month and has two children. Multiply that monthly total and add in $100,000 for college for each child. The $1 million that results is the minimum amount of life insurance he said should be left should the parents not be around. That amount might be less if the family has extra savings on hand, but McKinley said that’s not typical.
McKinley also advises that there be coverage on the stay-at-home parent.
“Some people say, ‘Well, I work outside the house and she doesn’t, so we don’t need any life insurance for her,’” said McKinley. “I like to give the working parent -- the one who’s actually making the money -- the option of staying home and taking care of the kids.”
Life insurance doesn't have to be expensive. McKinley said most people need term-life insurance, and that a 35-year-old man can get a $1 million policy for 20 years for about $50 a month; a woman can expect to pay about $35-$40 a month. He also said that most term-life policies can be made permanent at some point.
Even if a person doesn't have children, McKinley still recommends getting life insurance in most cases.
“You probably have debts that might need to be repaid. If you are in a relationship, you hopefully want to provide for that person and replace the income,” said McKinley. “If you’re just single and without any children, then I would say you don’t need any life insurance unless you have a significant student loan burden or you owe a lot of money to people who are relying on it, such as your parents. You may want to have a life insurance policy as a courtesy to them to make the loss of you only emotional and not financial.”
Finally, McKinley suggests a person not buy term-life insurance through an employer because if a person leaves a job, the policy usually won’t transfer. He said to consider getting a few policies from separate companies to guard against default of one of those companies. Also, he said to ladder or stagger the terms. For instance, get a 15-year term if a person has an 8-year-old child to take them into adulthood, and a 30-year term to take a partner well into retirement.
He suggests shopping around for term-life policies at www.term4sale.com.
Editor's Note: "On Your Money" can be heard each Tuesday at 8 a.m. on the Ideas Network. Email personal finance question to onyourmoney@wpr.org.
