Without a doubt, life insurance should be an important part of many people's financial plan. Having said that, don't be scared into buying insurance you don't need.
I wrote a column recently about who needs life insurance. I said you don't need to get insurance for a child. I said if you're single and you don't have anybody depending on you for support, you don't need life insurance. I said that if you're nearing retirement or are retired and have adequate savings and retirement investments to take care of a surviving spouse, you don't need life insurance.
Well, letters from disagreeing insurance agents and others filled my e-mail inbox faster than a river rising during a major storm.
Here's a sampling:
* "I see time and again that life insurance is not suggested for children since no one relies on their income. I find this advice a little shocking and short-sighted since a child's funeral is not free."
* "A minor child may develop physical ailments in his teens or early adulthood that could render him uninsurable."
* "Young and single people die and leave debt."
* "Older people, who need their money to live on, can use life insurance to help their grandkids compete in this unbalanced society."
* "The value of life insurance on senior citizens and empty nesters is to cover the cost of taxation on their estates."
If I may, let me add a reality check to such emotionally charged sales pitches from, I hope, well-meaning folks who are trying to make a living selling a product most people don't want to buy.
Yes, it's true that the average funeral costs about $6,500 not including the burial plot, according to the National Funeral Directors Association. Adding in burial expenses, a funeral can cost about $10,000.
So, sure, if you don't have any savings to speak of and you worry about paying for a funeral, then it may be prudent to get a small life insurance policy on your child. However, according to government statistics, the likelihood that your child will die prematurely is low. The likelihood that your child will develop an illness that will prevent him or her from getting life insurance as an adult is also low.
In fact, based on the 2001 CSO Mortality Table (the mortality table most recently adopted by the National Association of Insurance Commissioners), an average of one child per 3,000 dies each year, reports the American Council of Life Insurers. In 2003, about 83 percent of children were reported by their parents to be in very good or excellent health, according to the latest figures from ChildStats.gov. And in a 2003 survey of life insurance companies, the ACLI found that approximately 98 percent of people who apply for insurance are offered coverage.
As with most things in life, there are exceptions. Children do die. They do get sick. So if your family has a history of medical problems, if your child isn't being raised in a healthy environment, then it may be wise to buy a policy while he or she is young and insurable.
Here's the answer to an industry line pitched to singles that just isn't true: Your debts are not inherited by family members. Unless someone co-signed on your loans or signed paperwork to pay your bills if you couldn't, a creditor cannot legally make your parents, siblings or any other family members pay your debts after you die. If you want to buy insurance to pay off your debts, fine. But don't do it because you've been told your debts will be a burden to your loved ones.
If you're single and you think you're going to die leaving your family without the means to bury you, then okay, maybe you should get a small term life insurance policy to cover funeral expenses.
As for seniors, the basic advice for who needs life insurance applies. If you have a spouse or relative who needs your income to survive after your death, get insurance. But if that profile doesn't fit you, if you're retired with a limited income, don't buy an insurance policy if you could use that money for something else. Yes, it would be nice to leave a financial legacy, but that's something you do when you've got spare cash.
What about the argument that people need insurance so that their heirs can pay estate taxes?
Less than one out of every 100 people who die owes any estate tax, according to the Center on Budget and Policy Priorities. The first $1.5 million of the value of any estate is exempt from taxation. In 2009 that exemption is slated to rise to $3.5 million. At that level, only 3 of every 1,000 people who die will have an estate large enough to owe any tax.
Have you noticed I keep using the word "need" when it comes to purchasing insurance? That's because insurance is a game of chance. With life insurance, companies take a chance that you or whoever is covered won't die prematurely. Many people wisely purchase insurance in case that bet is wrong. However, you win at this game if you buy only what you need based on a realistic examination of the facts, not on emotion.
* On the air: Michelle Singletary discusses personal finance Tuesdays on NPR's "Day to Day" program and online at www.npr.org.
* By mail: Readers can write to her at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.
* By e-mail: email@example.com.
Comments and questions are welcome, but because of the volume of mail, personal responses are not always possible. Please note that comments or questions may be used in a future column, with the writer's name, unless a specific request to do otherwise is indicated.