Do I need life insurance? (I am 24 single with nest egg)?

Question

I am starting a new job which offers life insurance. For $30 a month I can get a decent policy. However, I have no one to name as beneficiary - my family has plenty of money and there is enough in my bank account to cover funeral costs/legal fees. Do I need life insurance? Should I wait and opt in when I have a family?

Answer 1

Given the circumstances cited, you do not need it now. But it's time to do a little planning. Estimate the probability that you will acquire a family. If this is likely, then estimate the amount of your expected net worth at five-year intervals, and also estimate the insurance proceeds that would be needed to support the family if at any of those five-year intervals you should get hit by a truck. Subtract these two numbers. If the needed funds exceed your estimated net worth, you should purchase insurance for the difference. If, because of family money or you win the lottery your net worth exceeds the needed support level, you do not need insurance. You do not need to purchase insurance now; yes, it would be cheaper, but you are paying to insure a risk that you do not have: buy insurance if and when you need it.

I'll recommend two publications: Ayres, Mathematics of Finance, published by Schaum; and Aleph, a set of tables published by the Internal Revenue Service (Pub. no. 1457). You will need a set of actuarial tables to do insurance calculations; there is a set in Ayres but it is too old to be useful, so use Aleph instead. (Don't print the whole thing - it's around a thousand pages -- just use the pages for an appropriate commutation rate [you'll learn what this is when you read Ayres] such as 3%. [In my copy, starts at Page 770.])

Answer 2

Well, there are two ways to look at this. If you consider insurance as only a means of paying final expenses, then you don't have a need for it right now.

However, consider this: do you ever plan on getting married or having kids? The younger you are when you buy insurance, the cheaper it is, and unless you plan on staying single with money in the bank to cover final expenses FOREVER, then you will eventually need life insurance. Therefore, if you have the opportunity, buy a small policy. People who say don't buy whole life insurance miss the point of insurance all together.

The typical situation is a family of about 4, with both parents working, and if one died, there would be a significant change in the way that family would live, or ability to meet financial needs. There may even be some bills that would require paid off in order for the family to be financially secure; also, with the lapse of one income, it might affect retirement goals, or college funds, etc. This is a reason to buy life insurance. So, again, in your case, you probably don't NEED to buy it now, but it would be wise to get something right now because you have the benefit of age and VERY cheap premiums on your side. Furthermore (and of course not wishing anything bad on you), if you do get that family, and fate has it that you get some disease or cancer or something, boom...sorry. It's also wise to protect your FUTURE insurability when you're young and healthy.

As an agent, I can't TELL you how many people I see who didn't think about this when they were young and healthy and now they want insurance at age 56, have health problems and take medication and wonder why they are declined or its so expensive.

I respect Suze Orman, but if she said don't buy insurance and to use tax shelters (which, of course, no one should have all of their investments in pre-tax money like IRA's, but that's another answer...), then I have to disagree w/ her on that one.

Answer 3

You have a few options. You can name your mum or dad as a beneficiary, but you can informally tell them or have in your will that you want that money donated somewhere. Or you can use the money for your funeral and legal fees, and put in your will that you want the money in your bank account to go to some donation (that actually sounds a lot easier, doesn't it?). But, as you said, you really do'nt need it so save that $30/month.

Oh, I almost forgot. If your insurance plan says anything about "investment," "bonds," or "dividends" on it, DON'T SIGN ANYWHERE. Without going into a lot of details, those things are only beneficial to the insurance company. You're better off sticking to something called "term life insurance." Basic life insurance with no investments at all.

Just reading the answers now, and remembered that "whole life" and "universal" are the ones with the investments on it. Those things generally cost about $50/month. If you really want to invest your money, take term for say $30/month, take the $20 and put it in a mutual fund or something. You'll get higher returns, trust me.

Answer 4

The question is: Are you financially set to not have life insurance? Do you have at least a million dollars saved for retirement? Are you debt free?

If you answer no, then you need life insurance. I wouldn't buy a permanent whole life policy. I would buy a 20 to 30 year term policy. At the same time, I would start a Roth IRA and put away at least $100/month into it. That way you are renting wealth and at the same time, building wealth. To learn about life insurance: read this blog at http://obe231.blogspot.com

Another reason why you should consider getting life insurance is that you are young, therefore premiums are very low. As you get older, premiums goes up as well. I bought mine at age 23 and paying only $22/month for $150,000 coverage for a 20 year term. At the same time, I'm investing $100/month into my Roth IRA so that later down the road, I probably won't need life insurance or maybe not as much coverage.

Answer 5

This is too complicated an issue to address on Yahoo! Answers. Many things will change in your life over the next 50-60-70-80 years. Most of them will have a financial impact (or component). Many things are in your control; many things are not.

What if you are in an accident or become sick and can't work (It happens)? How long would your savings last?

I find that most people would have a comfortable life if they had some permanent life insurance (and some term insurance). That way, no matter when their clock stops ticking, there is money there to cover them up and pay any remaining bills.

You would be best served to go meet with a financial planner in your area.

Good Luck.

Answer 6

It looks like you have a host of information already, but let me put in my 2 cents worth. There are only two reasons to buy life insurance - to protect someone who is depending on your income or to cover debts. If you have no dependents and no debt, you probably don't need it. It seems $30 a month for group insurance for a 24 year old is high. What kind of policy are they offering you? As someone else has already said, you might want to guarantee your insurability, but I would think you could do it for less than $30 and as suggested, put the rest in a 401K or IRA.

Answer 7

You don't have a huge need. The only reason I would possibly purchase a small permanent policy is for coverage that goes beyond your working years -- your Co Group term will not do that.

If you keep accumulating and investing -- the policy still means no one will have to sell real estate or mutual funds or stock or whatever you're invested in at a bad time to pay for final expenses.

You don't need it then -- it is just a much more economical way to pay for those final expenses.

Your situation will change so stay on top of it while your life evolves into new areas.

Good luck !!

Answer 8

Yes. The best financial decision is to have a life insurance policy, always. Although you are still young & healthy, there may come a time that this is not the case. The time to lock in Life injsurance premiums is while you are still young healthy.

Often times when your life responsibilities require you to get life insurance you have health issues. High blood pressure, diabetes, you have used a prescription for depression. All of these situations will increase the cost of life insurance.

Answer 9

No. The insurance companies are a scream. Have you seen where they try to sell life insurance policies on babies? So if the little guy falls in the toilet you get $10,000 bucks! And they try to tout it's a good investment vehicle. Pretty funny stuff if you read the details.

Answer 10

There is no need to leave insurance in your estate. Wait until you have beneficiaries. Put the $30 into your account and save it.