Life and Money With Helaine by Helaine Olen

Too Much Life Insurance Can Be Too Much of a Good Thing

Hi, Helaine: My daughter and son-in-law gave me my first (adorable) grandchild last year. My son-in-law has tons of life insurance, but my daughter has none. He's in the military, so life insurance seems to make particular sense, and they are thinking of getting even more. Apparently, the insurance also offers an investment plan, so they are getting two things for the price of one.

My daughter not only works, but she outearns her husband. I hate to think this way, but surely she should be covered too. When I raised the question, they laughed me off and said she wasn't in the military, but I worry. And what about the baby? -- Concerned Grandma

Dear Concerned Grandma: You are right to think this way. No one wants to think about life insurance -- it's truly one of the most depressing subjects out there -- but it exists for a reason. The way I was always taught to think about it is that it is about both replacing lost income and, if a person has caretaking responsibilities, the cost of replacing those services on the open market. For example, studies show that replacing the services of a stay-at-home parent could cost more than $100,000 annually. It sounds to me like your daughter meets both of those criteria.

But here is another question: Why does your son-in-law need more than "tons" of insurance? I've got a rather cynical answer to this: Insurance agents make a nice commission selling life insurance with an investment component. These policies are almost always a bad idea. The annual premiums are high, and the investment options offered within the plans are frequently less than optimal.

My advice? Both your daughter and son-in-law should look into something called level term life insurance, which is plain vanilla insurance that offers coverage for a set period of time, like 20 or 30 years. That's the most cost-efficient way to go. They can take the money they will save on premiums and invest it on their own. I promise they will do better using that strategy in the long run.

There's one person in the setup who doesn't need any life insurance, and that's your grandchild. Life insurance replaces lost income. Unless your grandchild is, unbeknownst to me, a successful child model or actor, he or she doesn't have income. And ignore all those people who tell you that life insurance with a cash value is an excellent college savings strategy. It's not.

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