What Type of Life Insurance Do I Need?

he following article comes from the U.S. News ebook, How to Live to 100, which is now available for purchase.

About 11 million U.S. households with children under age 18 had no life insurance coverage as of 2010, according to LIMRA, a worldwide research and consulting organization for the insurance and financial services industry. Overall, less than half of U.S. households had individual life insurance, a 50-year low.

That means if the breadwinner or the person responsible for childcare and household management died prematurely, the loss of income or need to pay for those services could push the household into poverty.

While most consumers begin thinking about life insurance when they get married and start a family, it can be wise to buy a policy even sooner, says Allen C. McLellan, associate dean and an assistant professor of insurance at The American College. In fact, USAA Life Insurance reports that the number of single people buying life insurance is increasing, even as overall sales decline.

[See 10 Ways to Boost Your Social Security Checks.]

"A young single adult who's not married or not in a relationship certainly needs enough to pay their end-of-life expenses so their parents don't have to come in and clean up the debts," says McLellan. Single policyholders who offer financial or caregiving support to parents may want their policy to cover that need as well. Buying a policy while you're young and healthy also means lower premiums; however, older consumers may also want a life insurance policy to leave a legacy for their children or support a surviving spouse.

Whatever your age or life stage, the first step in purchasing life insurance is conducting a needs analysis. Several online life insurance calculators provide a benchmark, or an insurance agent can discuss your needs. Seven to 10 times your annual salary is a common starting point, but many other factors come into play. "They're going to look at your ongoing expenses, your mortgage, your rent, are you paying tuition?" says Whit Cornman, a spokesperson for the American Council of Life Insurers. "Also consider immediate expenses, medical bills, burials costs, the fact that the family may need money to move if they're going to have to switch jobs."

For a spouse who doesn't work, "Consider what do you think are the costs of replacing that person?" urges Cornman. "For people who do the cooking, take care of the household, day care expenses. If they're a stay-at-home-parent, what are going to be the costs of that?"

In general, people to tend to underestimate their needs. And as Marvin Feldman, president and CEO of the Life and Health Insurance Foundation for Education (LIFE), a nonprofit that educates consumers about financial planning and insurance, points out, in this market, people need more capital to earn the same amount of interest that they did a few years ago.

[See How to Finance Life Until 100.]

Life insurance comes in many different varieties, so once you've determined your needs, an insurance agent can help choose a policy to match. Term life insurance insures you for a specified time frame, say 15 or 20 years, while permanent insurance remains in force as long as you continue paying the premiums. Permanent life insurance is sometimes also called cash-value insurance because it can accumulate savings on a tax-deferred basis. Whole life, variable life, and universal life are all specific types of permanent life insurance.

"Term is very simple to understand," says McLellan, who compares term life insurance to paying rent. "When I stop paying the rent, I would lose the coverage. That's why many young people buy term life insurance off the Internet. Once I get into the complexities of whole life insurance or universal life, the game changes. Anything more than term is generally going to require the services of a licensed agent."

According to Amy Bach, executive director of United Policyholders, a nonprofit organization that provides insurance resources to consumers, the most commonly purchased option is a term life policy with a flat annual premium or semi-annual premium. "The problem with the term life policy," she continues, "is once the term expires, the premiums will go through the roof."

Is Pet Insurance Worth the Expense?

When George and Alison Morin brought home their newborn baby last month, they noticed their two-year-old pit-lab mix, Bruno, didn't seem to be feeling well. "At first, we chalked it up to him being nervous about the baby," says Alison, a high school social studies teacher in New York City. "But once he threw up blood, we realized this isn't attention-seeking behavior." Bruno was rushed to the vet, where he was diagnosed with h emorrhagic gastroenteritis, or HGE, a rare disorder. Bruno spent three nights at the vet's office, getting antibiotics intravenously and, afterward, eating a diet of prescription dog food for three weeks. The bill? Three thousand dollars. But because the Morins had pet insurance, they ended up spending about $700. Not nothing, but welcome news nonetheless. The idea behind pet insurance is unimpeachable: You pay a monthly premium so that if your pet gets sick and needs expensive health care, your insurance can kick in and help you pay the medical bills. But is it really worth your money? The Morins certainly think so. The pet insurance also helped out last Thanksgiving weekend, when Bruno was attacked at a dog park. "It was absolutely horrifying to watch this larger dog clamp down on my dog’s head," says George, a public relations executive who adds that after he separated the animals, the other owner "leashed him up, led him out of the park and threw him in the back of his pickup truck without any acknowledgment that his dog had done anything wrong or to check if Bruno was all right." Bruno was not. "He needed to be knocked out, got stitches, antibiotics, the whole nine yards," Allison says. Still, as helpful as pet insurance can be, not every customer has become a convert. For instance, Julia Graham, who works in public relations in New York City, says that she and a roommate bought pet insurance a few years ago for their cat "and found it to be utterly useless and a waste of money." If you're going to buy pet insurance, you may want to think through a few things first. 1. Pet health care is expensive, even with insurance. If you're thinking of pet insurance as a way to make all of those health care costs go away, you'll probably be sorely disappointed. But pet insurance can mitigate the financial damage. The way Neely Raffellini, a Williston, Vermont, resident who runs a professional résumé writing service, thinks about pet insurance seems to be a good, realistic way to approach it. "I look at it as paying a little at a time or a lot all at once," she says. She has a 4-year-old boxer and Boston terrier mix named Leo. She also had a 12-year-old boxer named Colt, who passed away in 2012. Leo is covered by pet insurance, and so was Colt. She says she currently pays $46.45 per month, which can be adjusted with a higher deductible (hers is $50). So every year, Raffellini is spending $557 on pet insurance. Throughout Leo's first four years of life, that has equated to more than $2,000 in insurance. Anyone could argue this sum could have been better spent elsewhere. Except that earlier this year, Leo was injured by another dog at his day care and had to have surgery. The insurer still seems to be ahead so far, in this case. The bill was $623.44, and Raffellini received a check from the insurer for $467.54. But in Colt's case, insurance definitely protected Fellini from sticker shock. Colt, who had a brain tumor, was able to get an MRI, which cost $3,508.02, and the insurance paid $3,134.45. Of course, being an older dog, Raffellini says that Colt's insurance was far higher than Leo's. "But, again, it's a little at a time or a lot at once," she says. 2. Pre-existing and chronic conditions may not be covered. The reason Graham and her roommate hated their pet insurance was because the insurer always seemed to find a loophole as an excuse to not cover costs. In August 2012, when Graham and her roommate took their cat to be examined, the vet looked at their pet's ear and jotted down some notes, including a potential diagnosis, writing: "mild mucopurulent discharge left ear (polyp)?" In September of 2013, the vet removed what was a polyp, and their insurer pulled up the August 2012 medical statement and pointed to that as a reason to call it a pre-existing condition. "It was nothing more than the vet writing down thoughts or a potential diagnosis … Nevertheless, they concluded the condition was chronic and ongoing and thus, pre-existing," Graham says. Barb Voller, a retired administrative assistant in Orlando, is also not a fan of pet insurance for similar reasons. Four years ago, she bought insurance for her two German Shepherds, both rescues from a shelter in Illinois, where she used to live. She was charged $12 per dog. "Premiums did go up every year, as did my deductible. I was willing to pay that though, as I am a firm believer in insurance," Voller says. "When I added my daughter’s dog, a Shiba Inu, I was paying about $56 a month for the three dogs." But then one of Voller's dogs came down with pannus, an eye condition that eventually leads to blindness. Fortunately, there is medication that can control the condition. Unfortunately, it's expensive. Voller's insurance paid for the $50 a month medication, but after that, the insurer informed her that it only pays for chronic conditions during the first year. "So when my dog got an illness, they quit covering it," Voller says. "I thought getting insurance was to cover just such issues. I guess I was wrong." Disillusioned, several months ago, she canceled insurance for all three dogs, which by now was running her $66.72 a month. Research and compare. There are a lot of pet insurers: Trupanion, Pets Best, Petplan, Healthy Paws, Embrace Pet Insurance, Pets Best Insurance, PetFirst, VPI Pet Insurance and ASPCA Pet Health Insurance are just some of the big players in the pet insurance market. Don't assume that they all work the same way. For instance, some pet insurers cover office visits; many don't. Some insurers will pay you a percentage of what the vet charges for an operation or procedure; others will pay a set fee, meaning that if the vet charges far more for, say, anesthesia, than what the insurer will pay for, you could still end up paying far more than you expected. Don't even assume that the insurer will be exactly as advertised. You'd do well to pepper your insurer's customer service representative with questions before signing up, and if you don't get satisfactory answers, conclude that may be a red flag. 3. It's probably worth it if you would do anything for your pet. That's an unfair statement, of course. Plenty of people love their pets but truly can't pay thousands of dollars for surgery. But if you can afford to pay thousands, or you would even if it means going deep into debt for years, then pet insurance is likely a worthy investment as a way to buffer you from a calamitous expense. Brittney Weinerth, an occupational therapist who owns a pediatric therapy center in San Jose, California, has a cautionary tale to consider. About six years ago, after her golden retriever tore an anterior cruciate ligament and needed surgery, Weinerth got pet insurance. "We paid around $600 a year," Weinerth says. "We used it here and there for some minor issues she had like an ear infection." Eventually, the money began to feel like a waste, and after five years, Weinerth canceled the insurance. "When she turned 10, we discovered she had cancer in her leg which required surgical removal and radiation and simultaneously she tore her other ACL. For an entire year, she went through procedure after procedure, and the bills have really been outrageous," Weinerth says. "Six hundred a year seems like pennies now.

Whether you’re insuring your house, car or yourself, never shop based on price alone.

Buying insurance can be confusing, but when the unexpected happens – a house fire, a fender bender or a broken bone – it's a relief to know that some of those financial losses will be covered. But how do you know how much coverage you need? And what questions should you ask before buying a policy? Many consumers aren't sure. Insurance coverage is far from one size fits all, so here's a look at mistakes some consumers make when buying insurance. 1. Assuming insurance is out of reach. The U.S. Census Bureau reports that 48 million Americans had no health insurance in 2012. And about 30 percent of U.S. households have no life insurance, according to LIMRA, a worldwide research and consulting organization for insurance and financial services. In some cases, consumers skip insurance because they think it's out of their budget. Often, that's not the case, according to Marvin Feldman, president and CEO of the LIFE Foundation, a nonprofit organization that educates consumers about financial planning and insurance. The LIFE Foundation collaborated with LIMRA on the 2013 Insurance Barometer Study, which found that the average consumer thinks life insurance is three times more expensive than it actually is. "[Consumers are] not researching it to determine what the cost is," Fieldsman says. When buying health insurance or property and casualty insurance, ask about potential discounts. "Two-thirds of consumers don't realize they can get financial help if they buy their own health insurance, and they can get financial help if they go and buy in these health insurance marketplaces," says Lynn Quincy, senior policy analyst with Consumers Union, a division of Consumer Reports. "You may be way overpaying if you don't investigate this possibility." While health insurance discounts are often income-based, homeowners and auto insurers offer discounts for everything from being a member of groups like AARP, to being a good student or a good driver, to having a home security system. [Read: Is Your College Student Properly Insured?] 2. Relying on assumptions or outdated figures. Changing economic conditions mean you might need more insurance coverage than you had in the past. Take life insurance. In the past, consumers might have based their life insurance coverage on their current income, but "if something happens and you're no longer around, you need more capital at work to provide the same income [to your beneficiaries]," Feldman says. Disability and long-term care insurance are even more complicated than traditional life insurance. "For disability, do you want coverage that lasts forever? Are there health issues in your family?" Feldman asks. "That's where you need to speak to somebody to get some guidance." In the case of homeowners insurance, your home could be underinsured if you've renovated or if the cost to build a home has increased due to higher material costs or other factors. That's why experts recommend reviewing insurance coverage once a year to make sure it still fits your needs. Talk to your insurance agent if you're unsure. 3. Shopping on price alone. Comparing insurance policies can be confusing, but resist the urge to simply choose the policy with the lowest premium. Consider the company's reputation and the coverage you'd get for that premium. "As a general rule with health insurance, the higher the premium, the lower the amount you pay when you go to the doctor," Quincy says. Private health insurance plans must provide coverage examples showing what your estimated out-of-pocket costs would be for, say, having a baby or managing Type 2 diabetes. Some examples might not apply to you, but they can help you compare plans and see how much you might pay in coinsurance and copays. "Make sure you're shopping apples to apples and getting quotes based on the same coverage that you have," says Lori Conarton, a spokeswoman for the Insurance Institute of Michigan. Your property and casualty insurance may not cover things like food spoilage in the event of a power outage or stolen electronics worth more than $1,000, so you may want to purchase extra endorsements to cover those possibilities, she adds.