Insurance

Deciding whether to purchase life insurance and if so how much is a potentially life-changing decision. And not just for those you leave behind. The decision to insure oneself ultimately must be left up to each individual. It may not make sense to spend a large sum each month in order to enrich a distant relative upon your demise. And you can almost certainly invest any money saved on insurance premiums at a higher rate than the insurance company gives you credit for.

But for many people with dependents, life insurance remains a moral imperative. Still, the decision of how much insurance to purchase matters a great deal. Most people can afford to significantly upgrade their insurance coverage without breaking the bank, especially if their employer subsidizes their purchase. But any money spent on premiums is essentially money down the drain.

Many insurance companies advertise plans that build cash value over time and one recent innovation is to return the entire premium value at the end of a predetermined period. This provides a savings mechanism for people otherwise too easily parted from their money, but the investment returns are really sub-par. Even investing in a savings account can earn more interest than buying life insurance.

The best path is clear. Don't buy insurance you don't need and save the rest. If you're young and lack children, it probably doesn't make sense to buy life insurance. But when you do buy insurance, just buy a straightforward term policy. Don't get tricked by a gimmick into poor investment vehicles. And look both ways before you cross the street.