By Stanley Adamson, Ph.D.

No one really wants to talk about life insurance as it requires us to deal with the reality that we will not live forever. However, if you have one or more loved ones who depend on your income, it is a subject that you need to deal with today.

I know of a married couple with two children who never really dealt with the possibility of premature death until the primary breadwinner had a major heart attack at the age of 44. As a result of his medical condition, the purchase of life insurance was no longer an option. He did own his own barber shop. However, his spouse could not run the shop as she did not have the proper licenses or training. Due to his health condition, he worked only sporadically. His wife had never worked outside the home and they had children ages 6 and 12 who needed care and attention. Needless to say, this family struggled both financially and emotionally over the next several years. Six years later (and after five additional heart attacks) the man died. His wife was widowed with a twelve year-old daughter and an 18 year-old son who had just completed his first year of college. With little money and considerable debt, this young mother and her children had numerous struggles to deal with in the years that followed. Adequate life insurance could have made a world of difference in their lives.

So, how much insurance should you have? There are rules of thumb that suggest that you should have six to 10 times your annual income in life insurance. However, such rules of thumb are just that and may provide inadequate amounts for a given family situation. In this internet age, there are numerous life insurance calculators available at no charge to assist you in answering the question factoring in your family’s personal situation. One such calculator may be found at http://www.calcxml.com/calculators/life-insurance-calculator.

Generally, you need immediate cash for burial expenses, uninsured medical expenses, and money to pay off installment debt. In addition, you might need some monies for a one- or two-year adjustment period to allow the surviving spouse time to make needed adjustments to his/her lifestyle going forward. Other considerations might include funds to pay off the mortgage, an education fund for the children, and an emergency fund of three to six months of expenses. Also, there may be a need for money to provide some income to the surviving spouse during the “blackout period” which runs from the time the youngest child turns 16 until the surviving spouse reaches age 60. During this time, there is no money available to the surviving spouse from Social Security. Finally, one must decide if there will be additional monies needed for the surviving spouse’s future retirement.

How are we doing in regard to our life insurance planning as a nation? According to a recent consumer survey, 85 percent agree that most people need life insurance, while only 62 percent said they had life insurance. The trend in individual life insurance purchases is very troubling. In 1960, 62 percent of Americans owned life insurance. In 1992, the percentage owning individual life insurance had fallen to 55 percent. The latest survey shows that only 44 percent of us owned individual life insurance in 2010 – a 50-year low. In another survey of surviving spouses whose spouses died prematurely (between the ages of 30 and 55), only 25 percent of them felt that their spouses had adequate life insurance in place.

Why are we as a people not buying more life insurance? Tight budgets due to the financial crisis and always-competing priorities certainly have to be a factor. But another factor may be that we overestimate the cost of life insurance. Eighty-three percent of consumers overestimate the cost of individual life insurance by 300 percent. When asked the cost of a 20-year, $250,000 level term policy for a healthy 30-year-old, most believed it to be $400 annually. However, the actual cost was $150 per year (less than $3 per week). Again, there are many online services or toll-free numbers where you can get a quote for a policy. While people will question what type of policy to purchase, getting the right amount of life insurance is the most important consideration.

I encourage you to get your life insurance in place today! Why? Because I was the 18 year-old boy in the story who lost his dad on Christmas Day. This subject is very personal to me. The last thing I want to see is a surviving spouse and her children go through what my mother did. So, don’t procrastinate. DO IT NOW!!!

This article appeared in the December 5, 2014 issue of the Springfield News-Leader.  It is available online here.

Stanley Adamson, Ph.D., is an associate professor in finance and general business at Missouri State University and has held the Baker Chair of Insurance since 2008. Adamson specializes in risk management, employee benefits, property and liability insurance, as well issues of broad interest to the insurance industry. Email: stanleyadamson@missouristate.edu.