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Contemplating your own death or disability is about as unpleasant as, well, thinking about another 9/11-type attack. But accidents happen. The risk of a disability during your working life is significant. And, of course, the ultimate mortality rate is 100 percent. Insurance is a traditional way to guard against poverty, yours or your family’s, if death or disability strikes early. Yet insurance salespeople eager to earn commissions do not (or at least should not) inspire trust in the objectivity of their advice, and no one wants to spend money needlessly on something as grim as insurance. One reasonable solution is to determine first if you actually need life or disability insurance. Beyond that, certain kinds of life insurance are usually better than others. And the costs of buying disability insurance are best viewed in the context of your overall financial situation. FOR WHOSE BENEFIT? If someone is talking to you about life insurance, more often than not the person is trying to sell you a policy. Naturally, such an individual stresses how much you need it. The reality is more complicated. Compare two different big-firm lawyers. Lawyer A is a 40-year-old partner with an impressive house in Northwest Washington, a stay-at-home spouse, and young children. He’s earning half a million a year, but his family also has high expenses. With the large mortgage, multiple cars, child care and housekeeping assistance, and private tuition, he spends 95 percent of his income, leaving only 5 percent to invest. His nest egg is only four times his family’s annual living expenses. Lawyer B is a 28-year-old associate. She’s single with no children, and her parents have ample resources. She hopes to marry someday, though she assumes her spouse will be a professional. She rents a decent apartment in Arlington, Va., but drives an old Honda and is quickly paying off her student loans. She spends less than half her monthly take-home salary. Both of these attorneys’ law firms provide a basic level of life insurance, which would be enough to cover funeral expenses. Should they buy more? Lawyer A ought to have more insurance. If he dies of a heart attack in the midst of a deposition, it would cause significant financial hardship to his spouse and children. And he hasn’t saved enough for them to be financially independent (which requires a nest egg about 25 times as large as one’s total living expenses). When his children leave home and his retirement portfolio grows, he might want to drop coverage, but for now, a policy is probably a good idea. In contrast, Lawyer B wouldn’t gain a whole lot from life insurance. What exactly would she be insuring against? Certainly not the privation of her dependents, given that she has none now nor in her immediate future. If that changes, she can always buy the insurance later. (Don’t let salespeople spook you into thinking that buying insurance will somehow be difficult in the future; just ponder how eager they are to sell it to you now.) Life insurance isn’t for everyone. Buy it only if you have dependents who would truly suffer without your income. BUY TERM If you conclude that you need life insurance, policies come in two major kinds: term and whole life. Term life insurance is bought for a certain period � the “term.” This can be a lengthy period, such as 20 years. While you pay premiums you have coverage, but the coverage ends with the term. In contrast, whole-life insurance is intended to remain in effect over your entire life, though, in fact, most people don’t keep it that long. The premiums are often up to 10 times as expensive as those for term life. Part of the premiums go for insurance, but part go toward a subaccount, the “cash value” of the policy that builds over time. This money often can be invested, borrowed against, and spent in retirement. For almost everyone term life is the far better option. Whole life can have some specialized uses in large-estate planning, but it’s an inferior way to save for retirement. The high fees and commissions are particularly troubling. According to SmartMoney.com , these expenses can cost as much as 3 percent a year of the overall return from the invested portion of the premium, plus an initial commission that can equal the entire first year’s premium. If savings is the goal, you would do better to buy term life for as long as you actually need it, and then invest the savings from the lower premiums into low-cost mutual funds. Where can you get term life? The best place to start is at your computer. Internet competition has made it easy to compare policies. Two insurance-broker Web sites are www.accuquote.com and www.quotesmith.com . CAN’T WORK? The irony of life insurance, of course, is that you buy it for somebody else. But you will suffer firsthand if a disability prevents you from working. That’s not a remote possibility. A 30-year-old has about a 1-in-3 chance of experiencing a long-term disability (of more than 90 days) before retirement age. Statistically, you’re more likely to become disabled than to die before age 65. To deal with this risk, check first to see what short-term and long-term disability insurance your employer offers. You may already have some coverage. Should you purchase more disability insurance? The answer involves an analysis of trade-offs between your current financial situation and your likely need for a payout in case of a disability. As with life insurance, disability insurance may not be necessary for everyone. Money for disability insurance provides no returns unless a disability occurs (not something to wish for, of course), and the money otherwise spent on premiums might provide more value elsewhere. This is particularly true for short-term disabilities. For example, the return on investment would probably be greater if you paid off any credit-card debt. According to a 2006 Gallup Poll, only 42 percent of cardholders always pay their balance in full each month. If you’re in the majority that does not, you’re probably better off getting rid of high-interest credit-card debt before purchasing short-term disability insurance. You can always use the credit cards for expenses if a financial emergency arises. This might seem obvious, but studies in behavioral finance have found that people often keep separate mental ledgers for their spending even though money is fungible. You should view disability insurance in the context of your overall financial options, not as an isolated expenditure. More generally, a good precaution for any short-term period without income is an emergency fund. The conventional wisdom is to keep at least six months of living expenses in liquid accounts, such as a money-market fund. Unlike disability premiums, such savings will pay interest and be available for any necessary use, not just medical disability. Insurance seems more justifiable for long-term disabilities, particularly if you are far from having an adequate retirement nest egg. In this case you are not yet able to self-insure against the risk. Long-term disability insurance offers money to handle this problem, at least in the unfortunate event that the policy is triggered. Does this make it a good investment? The answer to that is a personal judgment call, and reasonable people may differ. If you think you may be more likely than the average person to experience a long-term disability, or if the additional protection would give you greater comfort than alternative uses of the money, it’s not a waste to get a policy. (I’ve bought long-term disability coverage through Legal Times, though I am fairly cautious.) On the other hand, if you have significant retirement savings, no dependents, and modest expenses, you might reasonably decide to rely on self-insurance and Social Security . If so, you can just put the money toward other savings. Bottom line: Buy the life or disability insurance that you or your family might need. Or buy what you think would give greater financial security than the alternative uses of the money. Just don’t buy because a salesperson seeking a commission wants to sell you a high-fee policy.
Robert L. Rogers, associate opinion editor atLegal Times , writes the Legal Tender column on personal finance. E-mail with questions, comments, or suggestions for future columns.

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