Not everyone needs to have life insurance

March 19--Q. Rick: Does everyone need to have life insurance?

-- William, Wellfleet

A. Despite what many people are led to believe, not everyone needs life insurance. You only need life insurance if you need to "leave behind" income if you were to die. So, when mulling whether or not you need life insurance, ask yourself: "If I were to die tomorrow, with the loss of my current income, would those who are financially dependent on me be able to continue to afford to pay for the things they need to pay for now and in the future?" Keep in mind, these include rent, medical insurance, living expenses and college expenses.

If the answer to that question is "no," then you need to buy life insurance. But if the answer to that question is "yes," then you really don't need to buy life insurance.

It's important to remember, though, that many day-to-day activities that don't generate a paycheck do have an economic value and need to be insured for. For example, the sudden death of a stay-at-home mom or dad would likely lead to expensive day care fees and decreased earning time for the surviving spouse. For that reason, a non-income-earning spouse in a family with other dependents should be covered by life insurance.

Once you've figured out whether you need life insurance, you'll have to decide which kind of life insurance you'll need.

With very few exceptions, the only type of life insurance you should buy is level term. That's because the premiums on cash-value policies -- any life insurance policy that has an investment component -- are so high that most people can only afford the amount of insurance they need. Even for those who aren't concerned about cost, cash-value policies are usually, at best, a mediocre investment, so it's almost always better to buy a term policy and invest the savings separately into mutual funds.

If you'd like your financial question answered, please email it to Rick Shaffer at: [email protected].

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