MP Dunleavey

The Basics

What if you got hit by a bus?

Clean underwear is easy. The rest of it, not so much. Here's how I'm death-proofing my finances -- and what you can do to protect the people who count on you.

By MP Dunleavey

Are you ready to die?

I'm not asking whether you've made peace with your Maker or your conscience. Rather if you were, heaven forbid, to meet an untimely end -- say, on your way back from lunch today -- would you have made the best possible plans to protect your assets and your survivors?

Me neither.

So I've decided that I had better seize the moment, while I'm still breathing, to nail down a what-if plan.

For example, ever since I had my son in late 2006, I have been promising to get life insurance.

The reason for my procrastination: Figuring out life insurance doesn't take a Ph.D. What it takes is time. And patience. Every phone call seems to last an hour. The questions are endless. You quibble with your spouse.

Budget several weeks to get all these ducks in order. At least.

If you can handle that, the rest is a snap. You'll be set to shuffle off this mortal coil in no time.

The problem with life insurance

The good news is that life insurance has never been so cheap -- yet strangely, fewer people are buying it.

Sales have been declining for 20 years, according to a 2007 survey (.pdf file) by Limra International, a market research company. Yet about 56% of married couples with children under 18 believe they do need additional life insurance coverage.

What's the hurdle? About 40% of consumers find life insurance so complex that they worry about making the wrong decisions. Result: You know you need life insurance, but you stall.

Because I have studied the bizarre human tendency to freeze up when faced with an overwhelming number of financial choices, I know I could grind my wheels for years trying to make the so-called right decision.

In reality, the smartest financial move is often the simplest. If you're like me and don't have any coverage at all, here's the least expensive, most straightforward solution for now. (You can always change or enhance your coverage later.)

Depending on the age and health of your survivors, get a 10-, 20- or 30-year level term policy from a top-rated company by using Accuquote or Insure.com, both of which are recommended by Kiplinger. (Accuquote is also recommended by Consumer Reports, although I found Insure.com easier to deal with.)

A 20-year level term policy means that you pay a fixed premium for 20 years of coverage. If you die during that time, your spouse or heirs get the death benefit.

Video on MSN Money

Estate planning will and trust © Vincent Hazat / PhotoAlto / Getty Images
Preparing for the worst
What would happen to your spouse and children if you died tomorrow? MSN Money's MP Dunleavey decided to put her family's future into her own hands.

If you don't die, you get nothing but the sweet serenity of knowing you were prepared for the worst. That's why some people dislike term and prefer so-called whole life policies, which also offer a cash value -- i.e. the premiums you pay build up some value -- but they are more expensive and far more complicated. Let's not go there right now.

The temptation to insure, insure, insure

Spend three minutes using this handy calculator to determine how much money your family would need to keep going if you died tomorrow. (The industry dryly calls this a capital-needs assessment.) The death benefit should cover replacement income, child care, college tuition, funeral costs, medical bills, etc.

Bear in mind:

  • Standard industry guidelines recommend replacing eight to 10 times the income of each partner. More on that below.

  • You need life insurance for both partners, even if one works mainly at home, like my husband. If he died, I would have additional child-care costs and so forth.

  • Most people choose a term that will cover them until their children are done with college and can support themselves.

  • The average cost of a funeral these days is about $7,600, according to the National Funeral Directors 2005 price list survey.

Continued: How much is too much?

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