If the paycheck stops: life and disability insurance

Money teachers broadly agree on term life, not whole life, for most families. Term life pays a set amount if you die during a set number of years. Whole life mixes insurance with a savings feature, and Ramsey notes it can cost up to 10 times as much. His advice: buy term and invest what you save, so insurance and investing stay separate.

• How much. About 10 to 12 times your yearly income (Ramsey's guideline). His idea is that your family can invest the payout and use the returns to replace your income.
• How long. 10 to 20 years: long enough to get the kids raised and to build savings that could carry the family without you.
• Who needs it. Anyone others depend on, including a spouse who stays home. Childcare, the books and running the house all cost money to replace.

Coverage through your job is a nice extra, but it's often small, and it usually ends when the job does.

Example (made-up numbers). Ray runs a two-truck crack repair and striping shop and pays himself $60,000 a year. Ten to 12 times that is $600,000 to $720,000. Ray and Dee's youngest is 4, so a 20-year term carries the family past high school. Dee does the books at the kitchen table and handles the kids, so they price a policy for her too.

Social Security says a 20-year-old worker has a 1-in-4 chance of developing a disability before reaching full retirement age. In this trade, a bad back or a wrecked knee can end a season, or a career.

• Social Security disability pays only if you can't work because of a medical condition expected to last at least a year or to end in death. There's generally a five-month wait, and you need enough recent work credits (P202.6).
• Workers' comp covers work injuries for employees. It doesn't cover a weekend wreck, and it usually doesn't cover 1099 workers.
• Disability insurance replaces part of your pay when an injury or illness the policy covers keeps you from working, including injuries off the job that workers' comp won't cover. You can get it through a job or on your own. Owners and 1099 workers often have to buy their own.

Before you buy, ask the agent four things: what share of your pay it replaces, how long you wait before it pays, how long it pays, and whether "disabled" means you can't do your own job or can't do any job.

Life insurance, an IRA and a bank account set up to pay on death go to the person named on the beneficiary form, whatever your will says. The same goes for property owned jointly with survivorship rights. So a form you filled out at 22 can outrank a will you signed at 40. Work retirement plans like a 401(k) have beneficiary forms too; check them the same way.

Check every form after a marriage, a divorce, a birth or a death. If a form still names an ex, or a parent who has since passed, the money may not go where you want. Name a backup beneficiary on each one. If your kids are young, ask a lawyer how money left to them would be managed, often through a trust (P202.5).

• Social Security: Disability Benefits and Survivors Benefits
• my Social Security: your record and benefit estimates
• Your state insurance department, to check an agent or file a complaint: NAIC directory