Chapter 4: Life Insurance
An Old Standby Has Lots of Uses

Brian and Paula are brand-new parents—of twins, no less! They know they need life insurance more than ever, but have plenty of questions. This chapter will provide some general guidelines.

Life insurance is often a good estate-planning tool, because you pay relatively little up front, and your beneficiaries get much more when you die. When you name beneficiaries other than your estate, the money passes to them directly, without probate. If most of your money is tied up in non-liquid assets like your company or real estate, life insurance gets cash into your beneficiaries' hands without their having to resort to a fire sale of other assets. Though procedures vary by company, usually the beneficiaries receive their insurance proceeds promptly. Generally, the beneficiary informs the company in writing of the death, sends a copy of the death certificate, and receives a check, often within a few weeks.

However, be warned that life insurance isn't always the estate-planning panacea the insurance sellers claim. You need to consider what the purpose of the life insurance is before you can decide which product is appropriate, how much coverage to buy and who should own the policy.

To decide how much to purchase, begin by estimating the long- and short-term needs of your survivors. Next, estimate what will be covered by other sources such as savings, a pension and other benefits. You'll want to buy enough life insurance to cover the difference.

Term Insurance an Option

Term insurance provides protection not for your entire life, but only for a specified term of years; it's cheap when you're young, but gets more expensive as you grow older. It can be a good idea, especially if you're relatively young or are starting a business venture; banks sometimes insist that an entrepreneur's life be covered by such a policy as a condition of advancing capital.