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Do You Need Life Insurance


									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
                                                                                      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
                                                                                                  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               |
  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

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