Here’s what you need to know about life insurance

Do you need life insurance?

If you are wealthy, probably not. But for the rest of us, we fall into two general camps.

Camp No. 1 includes those who don’t care or don’t have anyone or anything they want to leave things to when they die.

For example, suppose you are an only child with no parents, no heirs, etc. You still have an estate, and you should say in writing where it goes.

Camp No. 2 includes those who do care and do have people or organizations they want to leave their possessions to when they die. You feel you have responsibilities such as taking care of parents, an invalid child, or your spouse and kids.

In that case, life insurance can create an immediate estate when you die. But how much is enough?

That’s a tough question because there are so many variables. Let’s look at some.

Suppose you are 25 years old and earn $25,000 after taxes. At age 65 with a 1 percent compound increase annually, you will have earned about $1,275,000.

Suppose you are age 45 and earn $50,000 after taxes. At age 65 with a 1 percent compound increase annually, you will have earned about $1,173,000.

This is your life’s work, and people rely on that money. I presume your family still wants to eat and have a roof over its head after you die.

Maybe a $1 million policy might be a good start.

When you die, you know there will be money available, depending upon the claims-paying ability of the insurance company. Some call it an “instant estate.”

You may have died in an “instant,” but a large “estate” of money becomes available to your named beneficiaries.

Some call life insurance “death insurance.” You don’t want to die, but when it happens, you have provided money for the living to continue with their lives.

Life insurance can be complicated. For instance, there are many insurance companies and agents with numerous policies and riders with similar names.

Basically, there are two common forms of life insurance. Term life insurance is bought for a term and you pay premiums for 10, 20, or 30 years. You may want term insurance if your kids are young, especially to make sure there is college money available even if you are gone.

Whole life insurance is bought and paid for as long as you live. Somebody has to bury you and pay final expenses and bequests. There can be one whole life policy with a term rider or two separate policies of term and whole life.

Whatever you decide, the sooner the better. Insurance is based on many factors, especially health. You might even be required to take a physical exam.

Your health may be fine today, but if you put off buying life insurance and your health becomes bad tomorrow, you may be denied insurance.

This story was originally published July 31, 2017 at 1:32 PM with the headline "Here’s what you need to know about life insurance."