Family Financial Education Foundation Edition 6, Volume 1
Life insurance—do I need it? It’s
a good question—one that we all
have to ask ourselves. The deci-
sion to buy life insurance is dif-
ferent for everyone and is influ-
enced by many things. One more
monthly payment can seem like
a hurdle we’d rather put off until
later. In this newsletter, we’ll talk
about how to determine if you
need life insurance and how to
Do You Need Life Insurance? decide how much you need,
In the simplest terms, whether you be very high. Burial costs are steadily plus we’ve provided a few tips to
need to buy a life insurance policy increasing throughout the country. increase your understanding of
depends on whether you have peo- Funeral costs are also on the rise. life insurance and help you make
ple who are dependent on your in- Funerals and burial costs can eas- an intelligent choice when it
come and how dependent they are. ily add up to over $10,000. This is a comes to picking a policy.
If you have a spouse, child, parent, lot of money and leaving all of these
or other individual who depends on expenses for your loved ones to deal To decide if you need life insurance,
your income, you probably need life with might provide quite a burden for think about the worst-case scenario. If
insurance. If you own a business, them. If you are the primary bread- you were to die tomorrow, how would
particularly one that has employees, winner for your family and you pass your loved ones get along financial-
you might need life insurance for away without a life insurance policy, ly? Would they at least have enough
business maintenance purposes. your family may have no resources to money to pay for your funeral costs?
bury you. This would make dealing Would they have the money to pay
The unexpected death of a family with your death even harder for your
your medical bills, taxes, mortgage,
member is devastating for survivors. family.
and credit card debt? Would they be
Adequate life insurance coverage
able to meet ongoing living expenses
can protect your loved ones against A basic life insurance policy will be
like food, clothing, transportation,
the financial hardships of your death large enough to cover funeral ex-
and healthcare? What about long-
by providing them with the money penses. A good policy will provide
range financial goals? Without your
needed to manage certain expenses. enough of a financial security blan-
contribution to the household, would
The cash they receive from your life ket to cover funeral expenses and
your surviving spouse be able to save
insurance policy replaces your in- enough money to help your fam-
enough money to retire comfortably?
come and can help your family cover ily safely transition into a life without
daily living expenses, mortgage pay- you, providing them with the time Here are some typical scenarios to
ments, and college expenses. they need to recover, both financially help you decide what life insurance
and emotionally. Rebuilding a life af- you need:
Life insurance offers protection ter a profound loss can be a difficult
against a whole host of financial is- task in the best of situations. Leaving Two-income families with young
sues that can arise as the result of behind as much money as possible children or other dependents: The
your death. The costs of dying can can really help ease this burden.
(Continued on page 2)
Family Financial Education Foundation 1
NEWS & REVIEWS
TIP: The most successful way
to qualify for a low monthly pre-
mium is to maintain your health
and prove to insurance compa-
Do You Need Life Insurance? (Continued from page 1) nies that your health is of value
younger your children, the more in- necessities. Some surveys estimate to you. Habits like smoking or
surance you need. Because both the value of these services at over drinking or behaviors that result
spouses earn an income, both $40,000 per year. Insurance should in frequent traffic violations can
spouses should be insured, with in- be purchased to cover the services have a major impact on how
surance amounts proportionate to in- being provided by the stay-at-home much you will have to pay in
come amounts. If you cannot afford spouse. However, if funds are limited, monthly premiums. While some
to insure both wage earners, insure insurance on the wage earner should plans do not require you to have
the person who earns the most first, be acquired first. a medical exam to qualify, these
and insure the second wage earner policies are usually more expen-
as soon as that becomes possible. Single parent: As a single parent, sive, so it is in your best interest
you’re the caregiver, breadwinner, to maintain your health in a way
Families with one stay-at-home cook, chauffeur, and more. Unfortu- that helps you qualify for policies
parent: Could the working spouse nately, nearly 40% of single parents from reputable life insurance
afford to pay someone to provide have no life insurance whatsoever. companies that do require medi-
the care the stay-at-home parent Your children and the caregiver left cal exams.
provides if the stay-at-home par- to take care of them will need finan-
ent died? Just because one spouse cial support, which you can provide
doesn’t earn a salary doesn’t mean through a life insurance policy. maintain his or her standard of liv-
he or she doesn’t make a financial ing on your spouse’s income alone?
contribution to the family. Childcare, Married couple with no depen- Would your spouse have enough
transportation, cleaning, cooking, dents: If your spouse could live com- money to cover funeral and burial
and other household activities are fortably without your income, then expenses? You will still need some
all important tasks, and the work- you will need less insurance than the life insurance. At a minimum, you will
ing spouse would likely have to people in the above situations. If you want to provide for burial expenses,
pay someone to take care of these died suddenly, could your spouse paying off whatever debts you have
incurred, and provide as comfortable
a transition as possible for the sur-
Life Insurance for Children viving spouse. The amount of insur-
ance you need depends on your sal-
Many parents question the purpose of buying a life insurance plan for ary level and that of your spouse, the
children because children do not contribute to the family finances. Many amount of savings you have, and the
financial experts are more in favor of investing in a child’s college tu- amount of debt you both have.
ition fund than a life insurance plan. While it may seem that there is no
compelling reason to buy life insurance policies for your children that Single adults with no dependents:
pay out large benefits, there are a few reasons why basic life insurance You need only enough insurance to
for your kids would be a good financial decision: 1. None of us want to cover burial expenses and debts.
contemplate the loss of a child, but should such a tragic event occur, a Exceptions would include single
life insurance policy would be of great help to cover the costs of a burial people who provide financial support
and proper memorial service. for aging parents, siblings, or others.
If you’re in these types of situations,
2. Many times the death of a child stems from a fatal illness, which is just you should consider owning addi-
as unanticipated as a terrible accident. A life insurance benefit can help tional life insurance.
pay for costly medical bills not covered by health insurance.
Retirees: There is less of a need for
3. Purchasing a life insurance plan while your child is in good health is life insurance after retirement. You
generally inexpensive. If your child develops medical conditions such as will need some insurance to pay buri-
asthma or diabetes, life insurance premiums become much more costly. al expenses, final medical costs, and
Therefore, it is wise to purchase a basic policy covering each child while debts. You may also need to provide
they are young and in good health. Many employers offer insurance plans income for your spouse after you die
that provide coverage for children at very low cost. If your employer of- if your retirement assets are not large
fers this opportunity, you should consider taking advantage of it. enough.
2 Family Financial Education Foundation
How Much Life Insurance How much annual net income will
your survivors need?
Do I Need? Look at day-to-day living expenses
The answer isn’t really how much Use the questions below to help you first. If your death would create the
life insurance you need, but rather estimate your need for life insur- need to hire childcare, or your spouse
how much money your dependents ance. Remember that this is only a would need additional education to
will need after you’re gone. There guide. For more help, please consult qualify for a job, add those costs in.
are three basic steps to determining with your Family Financial Education The total amount needed may be
the ideal amount of life insurance for Foundation counselor. reduced if your dependents have
you. income of their own.
How much money will be needed for
• First, gather all of your personal burial expenses? Do you have any dependents who
financial information and estimate may go to college?
what your dependents would Remember, average burial costs
need to meet current and future range from $8,000 to more than Remember that your dependents
$10,000. can apply for financial aid, available
financial obligations. as low-interest loans. If you are de-
• Second, add up all of the re- For how many years into the ceased, your dependents may also
sources you already have in place future will your income need to qualify for grants, which they will not
that your dependents could draw be replaced? have to repay. However, they may
upon to support themselves. need some additional money for
If you were to die today, consider books or day-to-day expenses while
• Third, subtract what resources are how long your dependents would still they are attending school.
already in place from what your need your income for support before
dependents need. The difference they would be able to support them- Are there any one-time expenses
between their needs and the re- selves. Would your income need to you want to be able to pay for?
sources already in place to meet be replaced until children finish their Weddings, new cars, home
those needs is your optimum education, or until your spouse re-
need for additional life insurance. tires?
Do you have any liquid or semi-
liquid investments available?
Make Sure Your Dependents Have This could be savings accounts, real
Your Policy Information estate, jewelry, artworks, antiques,
anything that your dependents may
Life insurance companies are not required to look for the beneficiaries be able to turn into cash in a short
named on a policy. What does this mean to you? It means that if the time. Don’t include retirement funds
people you have named as beneficiaries on your policy don’t know about such as an IRA or 401(k) as you will
your policy, the life insurance money remains in the hands of the insur- need that money to pay for your
ance company after you die. This can easily happen if your employer retirement.
provides a life insurance policy as part of your employee benefits and
you do not tell your employer who you want named as the beneficiary or Don’t be discouraged if the above
beneficiaries on that policy. evaluation leads to a large sum of life
insurance. You can begin with a basic
The best way to ensure your dependents receive the funds from your life policy and add to it as your income
insurance policy is to tell them about it. Ignorance of the existence of a improves. Remember also that as
policy is the #1 reason almost 50% of all life insurance policies go un- the years go by and your dependents
paid. If your dependents do not contact the insurance company to make become more and more able to sup-
the company aware that you have died within an appropriate amount of port themselves, your need for life
time, the policy will often be cancelled because the premiums are no insurance will decrease and you can
longer being paid. This makes it very difficult, if not impossible, for your reduce your coverage.
beneficiaries to receive the benefits you planned for them. So make sure
your dependents know what company your insurance policy is held by,
what the policy number is, and what the benefit is that will be due to
them upon your death.
Family Financial Education Foundation 3
paid very much in premiums to
make up for what the insurance
TIPS & TRICKS company will pay out as a benefit.
• The area of the country you live
What If I Can No Longer Afford in will also affect the cost of your
My Insurance Premium? life insurance because the cost
of living varies drastically across
Difficult financial times can make it son you trust. Your Family Financial regions of the country. Life insur-
hard to handle the cost of a life in- Education Foundation counselor can ance premiums vary accordingly.
surance premium. Rather than just help point you in the right direction. A life insurance policy that is
let a life insurance policy expire and considered reasonably priced on
lose everything you have paid into Another option to consider requires the West or East Coasts might be
it because you can’t make the pre- the cooperation of the dependents considered outrageous in a lower-
mium payments, it is possible to sell who will benefit from the policy at priced area like the Midwest. For
the policy for cash value. One of the your death. Consider the policy as example, Iowa insurance quotes
ways life insurance companies make an investment for the family. After would be significantly lower than
money is policies that are never paid all, you won’t be here to spend the Florida insurance quotes.
out, so selling the policy is not some- money. Life insurance is an unselfish
thing you hear a lot about. way to make sure your dependents • Your lifestyle will affect the
are taken care of when you’re gone. amount of coverage you want
There are two ways that a policy- to purchase and, therefore, how
holder can cash out a life insurance When times get tough, it can be much your life insurance rate will
policy: heartbreaking to think of giving up run. If you want a life insurance
that investment in your family’s future. policy that will cover just the costs
1. Sell the policy back to the life in- It might be worth gathering your de- of your burial, then you will need
surance company for its cash value. pendents together to talk with them a lot less coverage than someone
about contributing to the cost of the interested in leaving their families
2. Sell the policy to an investor or monthly premium until you are back
investment company. money to cover living expenses
on your financial feet. If your depen- once they are gone.
Neither of these options will give you dents are too young to be wage earn-
the full death benefit of the policy ers, consider talking to parents or
siblings. By dividing up the payment
and both require some research to
discover your available options so be between several people, you may
find the premium manageable.
We have new
sure to talk to a knowledgeable per-
What Determines the Cost Mon.-Thurs.: 7:00 a.m.-8:00 p.m.
of My Life Insurance? Friday: 7:00 a.m.-7:00 p.m.
Saturday: 8:00 a.m.-1:00 p.m.
Policy rates can vary greatly from one • If you are young, healthy, and a
life insurance company to another, nonsmoker, you can expect to
which makes it difficult to know how pay a much lower life insurance
much you should expect an average rate than someone your age that Family Financial
life insurance policy to cost. Insur- is a smoker. The possible dam- Education Foundation
ance companies generally do not like age smoking can cause to the
publishing information on their policy health of an individual increases ACCESS EDUCATION SYSTEMS
prices. the smoker’s insurance premi- 724 Front Street, Suite 340
ums because smoking increases Evanston, WY 82930
Your life insurance rates are going to the chance that the smoker will contact: (877) 789-4175
be based on information about you. die at a younger age. This could www.ffef.org | email@example.com
Your age and general health are im- potentially cost the life insurance
portant factors in determining the company a lot of money because
cost of an annual life insurance pre- someone who dies young has not
If you know of someone who would benefit from this information, please pass this newsletter along.
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4 or how we can help you with your debt management program, please contact Family Financial Education Foundation at www.ffef.org.