It's empowering to be able to provide for yourself and your loved ones. One of the easiest ways is to make sure you have life insurance. Although there are many kinds (like whole or universal life), the only type you need is term insurance, because it's simple and affordable. Other plans include investing components, but you'd do better to buy the cheaper term policy and invest on your own. As its name implies, a term policy is one you buy for a set time period tied to a specific need. For example, if you want to protect a baby until she graduates from college, you might buy a 25-year term policy. If you die within that period, the guardian would receive a payout to support the child. Make sure the policy is guaranteed renewable and that it has a level premium, meaning your annual payments won't rise for the duration of the policy.
Use the "rule of 20" to determine the death benefit: You want the beneficiary to be able to invest the payout and live off the income, so he or she doesn't have to worry about eating into the principal. This means the death benefit should be 20 times the annual income you need to replace. If the goal is to replace $50,000 in annual income, you'd want to buy a $1 million policy. A 40-year-old woman in good health could get that coverage for about $100 a month. That way, the $1 million could be invested in high quality municipal bonds—which today pay about 5 percent interest—and generate the needed income. You can shop online for term life insurance at websites such as accuquote.com and selectquote.com.
Printed from Oprah.com on Sunday, December 8, 2013