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Family Financial Education Foundation Edition 6, Volume 1 Life Insurance 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 EDUCATION 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- improvements? 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 ARTICLES 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 business hours! 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 | firstname.lastname@example.org 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 mium. If you know of someone who would benefit from this information, please pass this newsletter along. This publication is the property of Family Financial Education Foundation. All rights are reserved. For more information about our services 4 or how we can help you with your debt management program, please contact Family Financial Education Foundation at www.ffef.org.
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