How Much Life Insurance Do You Need

Hello All,
 
Figuring out how much life insurance you should purchase can be a complicated process; no matter what shortcut strategies like multiplying your income imply.  More goes into planning than just your annual salary.  You want to find the middle ground; insurance coverage that will meet the needs of your loved ones, that has an affordable premium payment and that is not far in excess of what you truly need. 

A simple way to figure how much insurance coverage you should shop for is to take into account four main categories of financial need, in addition to some other contingencies.  These categories are income replacement, debt, final expenses, and education expenses for your children. 

Your family’s most immediate need will be the money to cover the expenses of your final arrangements.  Whether you decide in advance not to have a service there will be costs for burial or cremation.  This cost can exceed $20,000.    Make sure that if you want something lavish to celebrate your life after you are gone that you plan for the extra cost.  The benefit of using insurance coverage for this is that beneficiaries are usually allowed quick access to part or all of the policy.

You need to take into account your debts.  These need to include the mortgage or rent on the home you live in now and the likelihood of that expense increasing over time.  Include loan payments such as student loans, credit card balances, and car loans.   Even if your beneficiaries do not decide to sell the home they will need the money to cover the payments each month.  This will ensure a home for them to live in long-term.

After debts have been paid off and final expenses have been met your family should not need your full annual salary but a portion of it.  It is important that you take into account the replacement of your income.  Usually this amounts to about 50%-60% of your pre-tax income.

The thought of college expenses is very overwhelming whether you have one child, three or even more.  You need to plan for an estimated cost of college once your children reach 18.  Over the past 20 years tuition at most colleges both public and private has nearly tripled.  Remember to include this amount of money for each of your children.

You need to total the amounts for each category and combine them to get an estimate of your insurance needs.  Medical problems, spousal income, a paid off home, and more will figure into exactly what your needs will be.  You also need to consider how long you want the coverage to last.  If you are most worried about covering the expenses of your children growing to adulthood you might consider a 20 year term policy.  If you want to ensure that your spouse and children receive death benefits when they are independent adults you will want to check into a whole-life policy. 

 

Until next time,

Michael Hartmann http://www.findyourpolicy.com/
Tweeter: @FindurPolicy

Always remember our Mission Statement
“TO BE THE BEST IN SERVING OUR MEMBERS BY PROVIDING PEACE OF MIND THAT THEIR BENEFICIARIES RECEIVE THEIR INHERITANCE”

 

Rights of Life Insurance Beneficiaries

Hello All, 

A life insurance policy helps make certain those goals you or your beneficiaries have come to fruition even when you pass away. In the policy, you name a specific person, persons or others as a beneficiary or beneficiaries of the policy so they can pay for the things you felt were necessary or important after you’ve died. But what rights do the beneficiaries actually have?

 

According to life insurance law a person or persons named as a beneficiary must suffer some form of financial loss if you die. This is called an insurable interest and can include family, business partners, life partners and the like. A life insurance company can’t accept any person or entity without an insurable interest as a beneficiary. After the policy is issued, however, you can change the beneficiary to anyone you want to, even the local mail carrier. And, unlike a will, the named beneficiary cannot be contested by anyone. The insurance company has a legal obligation to pay them. You can also choose to divide the proceeds of the policy by percentages or equally if there are several beneficiaries you’ve named. This can include any surviving family or heirs of said beneficiaries should they also pass away before the proceeds are released.

 

Naming a beneficiary also helps avoid state inheritance or estate taxes in some states. Some states don’t include the life insurance proceeds going to a named beneficiary as taxable inheritance, even though the funds are still subject to the federal estate tax. Naming one or several primary and secondary beneficiaries is another contingency. Without multiple or secondary named beneficiaries the proceeds go to the estate and become an asset of probate, creating a time-delay before they can legally be distributed.

 

It’s important to word the policy correctly if naming children as beneficiaries. Include any unborn children so future family members aren’t accidentally left out of life insurance benefits. Also, do not name a trusted adult family member as a custodian of the child’s benefits and hope they will use the funds in the best interest of a minor. Many times in that situation, the funds simply become theirs to use for whatever they wish instead of protecting yours or the child’s interests. Fortunately, many states will not  release the funds if the child or children are under the age of majority but you can allow you to name a custodian on the provision the court approves any use of the beneficiary funds. This allows the money to be available while the children are young and helps direct the use of the money as you had planned.

 

Finally, a spendthrift clause may automatically be written into the life insurance policy. The wording used helps to prevent any creditors from legally attaching the beneficiary proceeds. Any proceeds are also protected from attachment by debtors’ creditors. The proceeds will then go directly to the intended person or persons, no matter how much the insured owes to creditors or others.
 
Until next time,

Michael Hartmann http://www.findyourpolicy.com/
Tweeter: @FindurPolicy

Always remember our Mission Statement
“TO BE THE BEST IN SERVING OUR MEMBERS BY PROVIDING PEACE OF MIND THAT THEIR BENEFICIARIES RECEIVE THEIR INHERITANCE”