Life insurance basics and what beneficiaries need to know

In today's Money Watch, we are talking about protecting your family financially because September is Life Insurance Awareness Month. Yep, they got a whole month to talk about it. We're talking about it. It's not an easy topic. People don't like to think about loss. But take a listen to these statistics. After the death of a primary breadwinner, 10% of people, about 1 in 10, would feel the financial strain after just one week or within one week even. And more than 40%, almost half, would feel it within six months. So this matters. CBS News Business Analyst Jill Schlesinger is here to explain what you need to know about life insurance. Jill, good morning. Thank you for being here. Okay, so what is life insurance? So this is just a contract where I pay a company, a life insurance company, and say a certain amount of money every year will go to pay for this thing called a premium. And if I die, then you, the company, will pay my named beneficiary a lump sum of money. Now, the problem with life insurance, frankly, is that it's really emotional. It forces us to contemplate our death and the impact that it would have on others. So the most common question that I field is, hey, how do I know if I need life insurance? And the easiest way to answer the question is if somebody is relying on you financially, and your death would cause that kind of strain that you noted in that statistic, the answer is yes, then you need life insurance. So if you're a person getting up in the morning, going to work, and someone is depending on your paycheck, then you need to think about life insurance. I want to go one level further than that, because in some respects, it's easy when it's like, okay, you're working, I'm at home with the kids, or we have kids. But what if you're paying for your adult parents? What if you are supporting your sister or siblings? So you have to factor in all the people that would be negatively impacted by your death. I never thought that as a young person, when I was younger, I never gave a thought to life insurance. I certainly think about it now, because I used to think it's for older people. So how do you know how much life insurance you need? This is a great question, because you'll hear rules of thumb. Oh, there's this times your salary, there's that. But the reality is every person is different, right? Because my situation may be that I've got four kids, and my salary is part of the equation. Maybe my spouse works. The best way to learn how much you actually need is to use a calculator. The life insurance industry has a really good calculator at lifehappens.org. You put in, hey, how much money do I spend every month? What is the other insurance coverage I have? What obligations do I have? Do I have debt that I want to pay off? You factor all that in, you plug in all those variables, boom, you got a number. That's the amount that you need. Okay, so are there different types of life insurance? And what about using workplace insurance? This is a great question, because there's two main categories. There's term life insurance, which is what it sounds like. You have life insurance in place for a specific amount of time. Maybe it's 20 years, maybe it's 30 years. You pay a premium. If you die within that term, your heirs get the money. Right. Now, for many people, this is a great idea, because it's very inexpensive up to age 50 if you're in good health. And most people don't need the coverage as they get older, interestingly enough, because they've already saved money and their kids are growing up, so maybe you don't even need the coverage after age 50. The other type of life insurance is called permanent life insurance. You may have heard of whole life insurance, universal life insurance. This is insurance coverage that stays in place for your entire life. Now, because it's in place for your whole life, it's way more expensive. And that's a very critical aspect of this. Most people don't need life insurance for their entire lives. And many of the insurance companies will say, well, there's an investing or savings component, but what we've learned is that to buy term insurance and invest outside of the insurance product may be the more affordable and better option for most families. It's always good when you come to the table. Always dropping little tidbits of stuff we could all use. Thank you, Jill. Or as Nate says, dollar, dollar, Jill. But nobody says it like him. Thank you, Jill.