Insurance: What You Do and Don't Need
March 1, 2007 — -- Health, life, travel, home -- when it comes to purchasing insurance it seems as if there's something out there to cover almost any need from a sprained ankle to lost luggage.
"Good Morning America's" financial contributor, Mellody Hobson, makes purchasing insurance for women easy, cutting through the financial jargon to bring you clear and simple advice on what kind of insurance coverage women need and why.
As a rule of thumb, Hobson said that all women should have life insurance because it ensures that when you die, your debts will be covered and your dependents will have the financial resources to run the household without you.
"The standard recommendation is for people -- no matter a man or a woman -- to have coverage of five to 10 times your annual gross salary," Hobson said on "GMA".
The only people Hobson suggests take a pass on life insurance are single women without dependents.
When it comes to choosing between types of life insurance -- term or permanent -- the best way to evaluate your decision is to look at your current financial expenses.
"Think of term and permanent insurance as you would the difference between renting and buying a home," said Hobson.
"With term insurance, similar to a renter, you pay for something that ultimately is not your own. Likewise, permanent insurance is similar to taking on a mortgage of a home, which will ultimately be yours. After you complete the final premium prepayment, the permanent policy, with its "cash value," is yours. Term insurance can be seen as a cushion for what you have not been able to accumulate."
Term insurance is the way to go for women who have to take mortgage payments or tuition bills into account.
Hobson also reminded viewers that women should not assume that they can rely on their husband's life insurance.
"Permanent insurance is not always a financial lifesaver," Hobson said. "It is essential for married women to invest alongside their spouse and save for their own retirement in a spousal IRA."
