Category Archives: 2011 Newsletter

Life Insurance FAQ’s

How Much Life Insurance Do I Need?

The answer isn’t really how much life insurance you need, but rather how much money your dependents will need after you’re gone. There are three basic steps to determining the ideal amount of life insurance for you.

    • First, gather all of your personal financial information and estimate what your dependents would need to meet current and future financial obligations.

 

    • Second, add up all of the resources you already have in place that your dependents could draw upon to support themselves.

 

  • Third, subtract what resources are already in place from what your dependents need. The difference between their needs and the resources already in place to meet those needs is your optimum need for additional life insurance.

Use the questions below to help you estimate your need for life insurance. Remember that this is only a guide. For more help, please consult with your Family Financial Education Foundation counselor.

How much money will be needed for burial expenses?

Remember, average burial costs range from $8,000 to more than $10,000. For how many years into the future will your income need to be replaced?

If you were to die today, consider how long your dependents would still need your income for support before they would be able to support themselves. Would your income need to be replaced until children finish their education, or until your spouse retires?

How much annual net income will your survivors need?

Look at day-to-day living expenses first. If your death would create the need to hire childcare, or your spouse would need additional education to qualify for a job, add those costs in. The total amount needed may be reduced if your dependents have income of their own.

Do you have any dependents who may go to college?

Remember that your dependents can apply for financial aid, available as low-interest loans. If you are deceased, your dependents may also qualify for grants, which they will not have to repay. However, they may need some additional money for books or day-to-day expenses while they are attending school.

Are there any one-time expenses you want to be able to pay for?

Weddings, new cars, home improvements? Do you have any liquid or semi-liquid investments available?This could be savings accounts, real estate, jewelry, artworks, antiques, anything that your dependents may be able to turn into cash in a short time. Don’t include retirement funds such as an IRA or 401(k) as you will need that money to pay for your retirement.

Don’t be discouraged if the above evaluation leads to a large sum of life insurance. You can begin with a basic policy and add to it as your income improves. Remember also that as the years go by and your dependents become more and more able to support themselves, your need for life insurance will decrease and you can reduce your coverage.

Make Sure Your Dependents Have Your Policy Information

Life insurance companies are not required to look for the beneficiaries named on a policy. What does this mean to you? It means that if the people you have named as beneficiaries on your policy don’t know about your policy, the life insurance money remains in the hands of the insurance company after you die. This can easily happen if your employer 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 beneficiaries on that policy.

The best way to ensure your dependents receive the funds from your life insurance policy is to tell them about it. Ignorance of the existence of a policy is the #1 reason almost 50% of all life insurance policies go unpaid. If your dependents do not contact the insurance company to make the company aware that you have died within an appropriate amount of time, the policy will often be cancelled because the premiums are no longer being paid. This makes it very difficult, if not impossible, for your 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.

What If I Can No Longer Afford My Insurance Premium?

Difficult financial times can make it hard to handle the cost of a life insurance premium. Rather than just let a life insurance policy expire and lose everything you have paid into it because you can’t make the premium payments, it is possible to sell the policy for cash value. One of the ways life insurance companies make money is policies that are never paid out, so selling the policy is not something you hear a lot about.

There are two ways that a policyholder can cash out a life insurance policy:

1. Sell the policy back to the life insurance company for its cash value.
2. Sell the policy to an investor or investment company.

Neither of these options will give you the full death benefit of the policy and both require some research to discover your available options so be sure to talk to a knowledgeable person you trust. Your Family Financial Education Foundation counselor can help point you in the right direction.

Another option to consider requires the cooperation of the dependents who will benefit from the policy at your death. Consider the policy as an investment for the family. After all, you won’t be here to spend the money. Life insurance is an unselfish way to make sure your dependents are taken care of when you’re gone.

When times get tough, it can be heartbreaking to think of giving up that investment in your family’s future. It might be worth gathering your dependents together to talk with them about contributing to the cost of the monthly premium until you are back on your financial feet. If your dependents are too young to be wage earners, consider talking to parents or siblings. By dividing up the payment between several people, you may find the premium manageable.

What Determines the Cost of My Life Insurance

Policy rates can vary greatly from one life insurance company to another, which makes it difficult to know how much you should expect an average life insurance policy to cost. Insurance companies generally do not like publishing information on their policy prices.

Your life insurance rates are going to be based on information about you. Your age and general health are important factors in determining the cost of an annual life insurance premium.

    • If you are young, healthy, and a nonsmoker, you can expect to pay a much lower life insurance rate than someone your age that is a smoker. The possible damage smoking can cause to the health of an individual increases the smoker’s insurance premiums because smoking increases the chance that the smoker will die at a younger age. This could potentially cost the life insurance company a lot of money because someone who dies young has not paid very much in premiums to make up for what the insurance company will pay out as a benefit.

 

    • The area of the country you live in will also affect the cost of your life insurance because the cost of living varies drastically across regions of the country. Life insurance premiums vary accordingly. A life insurance policy that is considered reasonably priced on the West or East Coasts might be considered outrageous in a lower-priced area like the Midwest. For example, Iowa insurance quotes would be significantly lower than Florida insurance quotes.

 

  • Your lifestyle will affect the amount of coverage you want to purchase and, therefore, how much your life insurance rate will run. If you want a life insurance policy that will cover just the costs of your burial, then you will need a lot less coverage than someone interested in leaving their families money to cover living expenses once they are gone.