Q. My term life policy will be up in five years, just as my son starts college. We have saved half the amount we expect him to need for tuition. I’m not sure I need another policy or whether the cost would be worth it. I’m 52 and healthy.
A. We’re glad to see that you’ve been a diligent saver for your son’s college education.
A lot goes into consideration when it comes to life insurance needs, so it’s hard to say without knowing more about your specific situation.
But here are a few things to think about.
Life insurance is often used to replace income that you would otherwise have earned over your working life should you die prematurely, said Gene McGovern, a certified financial planner with McGovern Financial Advisors in Westfield.
He said it’s designed to preserve your survivors’ current standard of living and assets and ensure that your financial goals will be met.
Those goals often include such things as funding children’s college education costs, paying off debts, such as a home mortgage, or providing a source of ready cash at death for funeral and related expenses.
Whether you need life insurance and what type of policy might be best differs from person to person, he said.
For many people, life insurance is a temporary need. Once you’ve retired, paid off the mortgage, and sent your children to school, you may have little or no need for life insurance, McGovern said.
“For that reason, term life insurance policies, which pay benefits only if you die during the policy term, are often an excellent solution,” he said. “They are the lowest-cost type of life insurance. The amount of coverage and the length of the term can be matched to your financial and life goals.”
Permanent life insurance policies, which cover you for life so long as you continue to pay the premiums, cost more than term policies but allow you to build a cash value that grows over time and that you can borrow against, he said.
The cost of life insurance depends on several factors, including your age, your sex, your health, and the type of insurance, he said.
In thinking about your need for life insurance, McGovern said it’s important to consider your entire financial situation and long-term goals. For example, if you’re married, does your spouse work, and would your spouse’s income, combined with Social Security benefits, be sufficient to maintain the family’s standard of living? Have you set aside enough money for retirement yet? Are there other financial needs besides college tuition?
“You might also want to consider whether your goal is to pay the entire cost of your son’s college education, or whether you would want him to contribute part of the cost through loans, work-study, or his own savings from summer jobs,” he said.
After considering these broader questions — and the level of protection you need for your family in the event of your untimely demise — you should be able to determine whether you will still need life insurance in five years, and to tailor a term life insurance policy to your individual needs, he said.
Email your questions to [email protected].
Karin Price Mueller writes the Bamboozled column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.com’s weekly e-newsletter.