Set for Life

Denise Trowbridge

Most of us need life insurance, yet industry statistics show at least 30 percent of us don't have any.

It "isn't a fun purchase, so people don't want to do the hard analysis" to figure out how much coverage they actually need, said Steven Weisbart, chief economist with the Insurance Information Institute.

There are also so many policy types it can make even a finance geek's head spin. For the vast majority of people, plain-vanilla "level-term" life insurance is the best fit, said Marvin Feldman, president of the nonprofit Life Foundation. "It has the highest death benefit for the lowest premiums."

Level-term is simple. You pay premiums. It pays a lump sum of money should you die during the term, which is the number of years the policy is in effect, usually between ten and 30. The annual premium stays the same over the life of the policy.

There are other types of policies, but they aren't right for most people:

•Decreasing-term: Offers a death benefit that slowly decreases over the life of the policy; it's primarily a back-up plan for paying off the mortgage.

•Return-of-premium: Refunds all the premiums you've paid if you don't die before the end of the term; they cost about 50 percent more.

•Permanent and whole life: Don't expire as long as premiums are paid. They pay out a death benefit, but also accumulate a cash balance in a tax-deferred account. The cash can be used to pay the premium, or you can take a loan against it. They cost much more than a plain term policy.

•Convertible level-term: Can be converted into permanent policies when the term expires, and also cost more.

•Universal: Have a cash value invested in securities. If they do well, the money is used to pay premiums and fees. But they don't always work as planned, and have been the subject of much litigation.

•Variable: are similar to universal policies, with individuals investing their own premiums. The death benefit and cash value fluctuate along with the stock market.

Weisbart isn't a fan of any policy with an investment component because they're risky, and "investment is not why you buy life insurance."

If you want good, affordable coverage with no risks, stick to the level-term policy.

So how much coverage do you need? Enough to pay funeral expenses, outstanding medical bills, any debt balances, and to meet big-picture goals such as paying college tuition, said Brad Huffman, a certified financial planner with Future Finances in Worthington. It should "also cover lost income, multiplied by the number of working years left before retirement."

For the stay-at-home parent, the policy should cover those things plus whatever it would cost to hire someone to take over the duties you do for free - childcare, cleaning, laundry and cooking, Weisbart said: "In many cases, that number is larger than you would think."

And, yes, you probably have a modest life insurance benefit if you have a full-time job. Benefits are usually small and, if you lose your job, you'll have no coverage, and be older and perhaps have to pay more on the open market.

- Denise Trowbridge is a self-professed money geek who writes about personal finance, banking and insurance for The Columbus Dispatch, and