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7 situations when you should consider life insurance

Most Americans think that buying life insurance is important. However, this belief isn’t reflected in the numbers – three out of 10 households lack life insurance, and half of all households think they need to buy more life insurance.

Procrastination keeps many from buying the life insurance they need as they focus on other financial priorities, says Cheryl Retzloff, senior research director at LIMRA, a trade group.

While some people can afford to wait, such as singles without children, here are seven situations where you should consider buying life insurance sooner rather than later.

You love someone. People tend to buy life insurance to financially support their loved ones, such as a spouse or a child, in the event of death. However, couples in civil unions and those who acquire property together should explore policies as well, says Brian Ashe, treasurer of the Life and Health Insurance Foundation for Education (LIFE). People who provide financial support to parents or are responsible for nursing home bills also should consider a life insurance policy that would cover that financial obligation if needed.

You owe someone. If you have financial obligations or
debts that wouldn't be met if you die, you should consider when-to-buy-life-insurancebuying life insurance. For example, if you own a home and die before the mortgage is paid off, your heirs might not be able to afford the mortgage without your income, says Ashe, who’s also president of Brian Ashe and Associates, an insurance agency in Illinois. Likewise, if you own a business and die before you’ve paid back a business loan, a life insurance policy might enable your heirs to keep the enterprise going. If you divorce your spouse, a life insurance policy can be used to ensure that alimony or child support is paid off in the event of your death.

You're a homemaker. Some people believe that if they don’t generate income, they don’t need life insurance. But if you’re home taking care of the kids, there’s an economic value to what you do, says Tony Steuer, author of "Questions and Answers on Life Insurance: The Life Insurance Toolbook." Figure out how much it would cost for child care, housecleaning, cooking and other tasks that might have to be outsourced if you die. A life insurance policy would make it easier for the surviving spouse to cover those additional costs.

You have life insurance through your job. If you think the life insurance policy that you get through your workplace is enough, think again. “Basic group coverage is usually one times your salary,” Steuer says. So if you make $50,000 a year, you might have $50,000 worth of coverage. It’s more likely that you’ll need 10 to 15 times your income, Ashe says. Another reason you need more than the group policyoffered through your job: Such policies often aren't portable, meaning that if you lose your job, the policy doesn’t go with you.

Your retirement account’s taken a hit. With many people losing much of their retirement money in the recent economy, “you’re seeing people with 401(k) accounts worth 40 percent or 50 percent of what they were worth a couple of years ago,” Ashe says. If there’s not enough money in your retirement plan for your spouse to thrive if you die, a life insurance policy would supplement it, he says.

You’re young and healthy. The cost of life insurance rises with age. When you’re in your mid- to late-40s, the premiums start to rise more significantly than when you’re in your 20s and 30s, Ashe says. Policies also increase in price if you have health problems. If you buy a policy when you’re in your early 40s and healthy, not only will you pay less than you would 10 years later, but you’ll already be covered if you have catastrophic health problems in the future that could hinder your ability to buy insurance then.

You’ve had major health problems. Many people think they won’t qualify for life insurance if they’ve ever had a major health setback such as a heart attack. But that’s not necessarily true, particularly if you’ve been healthy in the recent past. “Somebody who had quadruple bypass surgery yesterday is not going to be able to get life insurance, but five years down the road, they might be able to get it,” Steuer says. Also, different insurers view health criteria differently, so one insurer might not cover you if you’ve had any form of cancer, while another might offer a reasonable rate depending upon how long ago it was treated.

Bottom line: Never assume you can’t get life insurance if it’s something you truly want, Ashe says. Shop around. “You might get a ‘yes,’” he says.

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