Baby Makes Three

Question of the week: I've gotten married and had a baby all within one year. For the first time in my life, I'm thinking about all the people who depend on me. Do I really need life insurance? If so, what kind is best? —Brand New Mom Dear Brand New Mom, You've asked two important questions that stir up strong opinions among different people. Here's a sampling of the views about life insurance from the Armchair Millionaire community: Only get it if you need it. "I'm working my first job after graduating college and have no dependents, so I don't need life insurance at this point in my life." —Morgan S. Buy term and invest the rest. "Life insurance can be very expensive, so it should be used only for dependents. Buy term, then invest through IRAs and 401(k)s." —MW Pass up the investment. "I believe in term life insurance-just paying a basic fee for basic insurance coverage. I don't need or want my insurance company investing any money on my behalf or making promises to me about its ability to get great returns." —Roger My own approach to life insurance is simple: First, when do you need it? If you have dependents, you need it. If no one is depending on you for financial support, you don't need it. Second, how much do you need? You need enough to replace any income your family would lose if you weren't around earning a living—usually a lump sum that will be spent down during your children's growing-up years. Buy a plain-vanilla term life policy and keep it only as long as you have dependents. As a new parent, the coverage you need doesn't stop here. While it's important to protect your family with life insurance, it's just as important to have the insurance that will keep your financial life on track when you're faced with those relatively minor unexpected events, like a fender-bender or knee-crunching crash on the ski slopes. The key is to put together a package of insurance that includes the right types and amount of coverage for your situation at a price you can afford. My checklist covers some basic steps for doing exactly that. The Armchair Millionaire Checklist for Family Insurance Coverage Get disability. While too often overlooked, anyone who needs their paycheck to pay bills should consider disability insurance. This is especially important for anyone who is the sole breadwinner in the family. Shop around. You can save some money by comparison shopping, but cost should not be your only consideration. It is well worth it to spend a few extra dollars to buy your insurance from a highly rated company that provides fast, convenient claims processing. Raise the deductible. As long as you can cover your out-of-pocket costs, think about raising the deductible on your car, health and homeowner's insurance. A higher deductible basically means that you're taking on more of the risk yourself, so the insurance company gives you a break on your premium. Ignore the hype. There are a few types of insurance that are heavily marketed but often simply not worth the money, including mortgage life insurance and credit card insurance. These can cost far more than they're worth and you will usually have the same or similar coverage through your life and disability policies. The Bottom Line: Insurance is the only investment I know of where you hope you'll never see a return. However, when the unexpected does happen, your family will be able to focus on much more important matters if you've planned ahead and chosen the right package of insurance.