"Some think that if you're single and don't have a spouse or children, then there's no need for life insurance," says Todd Laszewski, director of life product development at Northwestern Mutual.
Then too, there's the bravado of youth. "There is a feeling of invincibility: Young, single people are generally healthy and likely not concerned about the risk of an untimely death," he says. "They simply don't consider that there is a need, and in a fact, a long-term benefit, to considering how life insurance fits into their financial security planning early on."
"Life insurance for a single person doesn't always make sense," points out Michael Wall, president of Wall Financial Group, "but sometimes it's a perfect fit." Who needs it, and how much, for the most part comes down to the goals of the person.
Vicki Brackens, a senior financial planner with Brackens Financial Solutions Network and MetLife, thinks that only a tiny percentage of the single population really needs no life insurance at all. "It could be that rare person who is not attached to anyone or anything, and they don't care about their legacy," says Brackens, but for a variety of reasons, it's a good tool for everyone else.
Your Life Won't Always Be Like This
For starters, consider your "end of life expenses." Who is going to pick up the remaining tab for your debts, mortgage, funeral, car and other responsibilities?
Next, ponder your legacy. "Life insurance can be a great way to leave a tax-free legacy to nieces, nephews or anyone else," says Wall. That list also includes your favorite charity. "You could buy a single policy that would pay a lump sum to the organization or have the policy paid to a trust and create an income stream for as long as you desired," he adds.
Know too, that life insurance purchased today can protect your future insurability. When you're young and healthy, not only is life insurance cheaper, but getting a policy early in life eliminates the risk that later health issues will make you uninsurable, or saddle you with premiums that would send you to the poor house, points out Frank Darras, a lawyer with DarrasLaw, which specializes in insurance. You're also not likely to be single forever: Buy a policy now, and you can just build on your existing coverage once you're married, instead of starting from scratch when you're older and initiating coverage will be more expensive.
A Smart Investment for Yourself, Too
Depending on the type of life insurance you buy, a policy can also be a forced savings vehicle, notes Byron Udell, CEO of AccuQuote, which offers online life insurance quotes and information.
"I have owned a $500,000 whole life plan for the past 20 years. If I were to cash it today, I would have earned over 4% per year cumulatively, on every dollar I put into it -- not to mention the fact that if I had become disabled, the insurance company would have paid my premiums for me and I'd still have all that cash available to me. Further, my beneficiaries would receive over $500,000 tax free, if I passed away."
There's another way to make use of a life insurance policy. "I make too much income to qualify for a Roth IRA," says Tony Keena, who is single and a partner with the Estate & Business Planning Group. " By using a cash value life insurance policy, I can redirect those dollars that I would like to contribute towards a Roth to my life insurance policy. This allows me the same tax deferred accumulation of dollars [inside of the policy]."
"When I decide to take the monies out, I can do so tax free [just like the Roth IRA]. So by using this strategy, one can put away dollars that can later be taken out tax free and they do not have income limitations imposed on them," he adds.
Let's Go Shopping
If all this talk is starting to make you think that life insurance might be for you, investigate. Generally, term insurance covers you for a specified period, determined by you, and whole life (also called cash value or permanent insurance) covers you your entire life, has a savings component and you can borrow from the policy.
"I bought my first cash-value life insurance policy almost 20 years ago," says Pamela Yellen author of Bank on Yourself: The Life-Changing Secret to Growing and Protecting Your Financial Future. "I was reluctant to buy it since I was single and had no children, but it made sense after an insurance agent explained the guaranteed savings component and ability to access cash whenever I want. It turned out to be the best financial decision I ever made, and the policy has beaten my stock and real estate investments handily -- without the sleepless nights."
There's a lot to learn, and one size doesn't fit all. So do seek a financial adviser for guidance.
While you don't want to pass up a free coverage offered by your employer, supplementing that with a policy on your own is often a good idea. "Unlike your employer's policy, which is not portable, your protection goes with you wherever you go, even if you change jobs," says Laszewski.
You'll want to choose an insurer that has financial moxie. "You don't want the insurance company to 'die' before you do," says Udell. "A life insurance policy is a 'promise to pay' by an insurance company and you want them to be there in the future to pay your claim."
Pick a company with top financial strength ratings that has demonstrated stability over time, advises Kirk Okumura, adjunct professor of financial planning at The American College, which provides education for financial services professionals. "Only buy from companies that are highly rated by agencies like AM Best [A++ is the highest rating] and Standard & Poors [AAA is the highest rating]," he says.
The big question though, is how much will all this coverage cost? According to Bryan Pendrik, senior planner with TSG Financial, the factors that determine the premium you'll pay include:
- Your health (naturally, the healthiest people pay the lowest rates);
- Smoking (it adds 30% to 40% to a policy's cost -- good financial incentive to quit);
- Family history;
- Age (the younger you are when you open a policy, the better);
- Your state; and
- Your gender (women pay less than men)
Greg Blake, executive director of life insurance products for USAA, adds a few more items to that list: A risky occupation or hobbies may lead to higher premiums, or exclusions if an accidental death occurs. And Vicki Brackens reminds us that where you travel and how often, your driving record and your credit rating can have an impact too.
Still, while low premium rates may seem appealing on the surface, they shouldn't be the chief criteria for choosing your policy.
"Low rates can come at high cost, and it is critical to understand the difference between price and cost," says Laszewski of Northwestern Mutual. The price of life insurance is the premium that you pay for your policy. But the ultimate cost takes into account not just the premium, but other factors as well. For instance, does the company pay dividends? Those will, in essence, lower your premiums over time. With permanent life insurance, you should take into account the cash value that builds up over the long term, and the fact that the protection will be in place for your entire lifetime. "These aspects add significant value to the policy and reduce the true 'cost' to the policy owner," he says. As with everything, shop around.
Whatever you do, take action. "Don't be afraid to have a conversation about life insurance -- it doesn't mean you're causing your impending death," says Brackens.
Udell of AccuQuote sums it up nicely: "Life insurance is at the foundation of the financial planning pyramid. Bad things happen. And when they do, life insurance is the only product that provides the right solution for that moment in time. Your chances of dying are one out of one. It's just a matter of when."