Life Insurance Awareness Month: Who Needs Life Insurance?
Source: Lifehappens.org
If someone will suffer financially when you die, chances are you need life insurance. Life insurance provides cash to your family after your death. This cash (known as the death benefit) replaces your income and can help your family meet many important financial needs like funeral costs, daily living expenses and college funding. What’s more, there is no federal income tax on life insurance benefits. Most Americans need life insurance. To figure out if you need life insurance, you need to think through the worst-case scenario. If you died tomorrow, how would your loved ones fare financially? Would they have the money to pay for your final expenses (e.g., funeral costs, medical bills, taxes, debts, lawyers’ fees, etc.)? Would they be able to meet ongoing living expenses like the rent or mortgage, food, clothing, transportation costs, healthcare, etc? What about long-range financial goals? Without your contribution to the household, would your surviving spouse be able to save enough money to put the kids through college or retire comfortably? The truth is, it’s always a struggle when you lose someone you love. But your emotional struggles don’t need to be compounded by financial difficulties. Life insurance helps make sure that the people you care about will be provided for financially, even if you’re not there to care for them yourself. To help you understand how life insurance might apply to your particular situation, we’ve outlined a number of different scenarios below. So whether you’re young or old, married or single, have children or don’t, take a moment to consider how life insurance might fit into your financial plans.
You’re Married
When you’re married, you share everything with your significant other, including your financial obligations. Many people mistakenly believe that they don’t need to think about life insurance until they have children. Not true. What it one of you were to die tomorrow? Even with the surviving spouse’s income, would that person be able to pay off debts like credit-card balances and car loans, let alone cover the monthly rent and utility bills. If you’re planning to have children, you’ll want to buy life insurance right away and not wait until the mom-to-be is pregnant. Some companies won’t issue a policy to a woman during her pregnancy. Since health complications sometimes arise, they’ll want to wait until after the baby is born to issue the policy. Buying insurance before a baby is on the way helps avoid this potential problem.
You’re Married With Kids
Most families depend on two incomes to make ends meet. If you died suddenly, could your family maintain their standard of living on your spouse’s income alone? Probably not. Life insurance makes sure that your plans for the future don’t die when you do.
You’re a Single Parent
As a single parent, you’re the caregiver, breadwinner, cook, chauffeur, and so much more. Yet nearly four in ten single parents have no life insurance whatsoever, and many with coverage say they need more than they have. With so much responsibility resting on your shoulders, you need to make doubly sure that you have enough life insurance to safeguard your children’s financial future.
You’re a Stay-At-Home Parent
Just because you don’t earn a salary doesn’t mean you don’t make a financial contribution to your family. Childcare, transportation, cleaning, cooking and other household activities are all important tasks, the replacement value of which is often severely underestimated. Surveys have estimated the value of these services at over $40,000 per year. Could your spouse afford to pay someone for these services? With life insurance, your family can afford to make the choice that best preserves their quality of life.
You Have Grown Children
As the years go by, you may feel your need for life insurance has passed. But just because the kids are through college and the mortgage is paid off doesn’t necessarily mean that Social Security and your savings will take care of whatever lies ahead. If you died today, your spouse will still be faced with daily living expenses. What if your spouse outlives you by 10, or even 30 years, which is certainly possible today. Would your financial plan, without life insurance, enable your spouse to maintain the lifestyle you worked so hard to achieve? And would you be able to pass on something to your children or grandchildren?
You’re Retired
Did you know that depending on the size of your estate, your heirs could be hit with a large estate tax payment after you die (45% of your estate). The proceeds of a life insurance policy are payable immediately, allowing heirs to take care of estate taxes, funeral costs, and other debts without having to hastily liquidate other assets, often at a fraction of their true value. And life insurance proceeds are generally income tax free and can be arranged to avoid probate. Finally, if your insurance program is properly structured, the proceeds from your life insurance policy won’t add to your estate tax liability.
You’re a Small Business Owner
Besides taking care of your family, life insurance can also protect your business. What would happen to your business if you, one of your fellow owners, or perhaps a key employee, died tomorrow? Life insurance can help in a number of ways. For instance, a life insurance policy can be structured to fund a “buy-sell” agreement. This would ensure that the remaining business owners have the funds to buy the company interests of a deceased owner at a previously agreed upon price. That way, the owners get the business and the family gets the money. To protect a business in case of the death of a key employee, “key person insurance,” payable to the company, provides the owners with the financial flexibility needed to either hire a replacement or work out an alternative arrangement.
You’re Single
Most single people don’t need life insurance because no one depends on them financially. But there are exceptions. For instance, some single people provide financial support for aging parents or siblings. Others may be carrying significant debt that they wouldn’t want to pass on to family members who survive them. Insurability is another reason to consider life insurance when you’re single. If you’re young, healthy and have a good family health history, your insurability is at its peak and you’ll be rewarded with the best rates on life insurance. If you anticipate a need for life insurance down the road (e.g., you’re the marrying type) and you can fit the premiums into your budget, it might make sense to lock in coverage while you’re young and single. Doing so can eliminate the worry of having to qualify for coverage when you’re older and maybe not as healthy as you once were.
Too cash strapped for longevity, many consumers also lack life insurance
By Chris McMahon
As Americans are living longer they are concerned that they are not financially prepared to live into their 70s, 80s and 90s.
With age comes wisdom supposedly, but even as more Americans are living longer they are not financially prepared for their retirement years and also lack life insurance. According to the Centers for Disease Control, the average American’s life expectancy has increased to 75.7 years for men and 80.6 years for women. Of those age 65 and coupled, there is a better-than-even chance one partner will live to age 94, and one-of-10 couples will have a partner that lives to 100 or more.
Unfortunately, a new study finds that while Americans are living longer, almost half are concerned that they are not financially prepared to live into their 70s, 80s and 90s.
Can’t afford to live…
The “Longevity & Preparedness Study,” conducted by Northwestern Mutual, asked people how financially prepared they feel to live to age 75, 85 and 95 and revealed that only slightly more than half (56%) feel financially prepared to live to the age of 75. Fewer than half (46%) feel financially prepared to live to age 85; and only about one-third (36%) feel prepared to live to age 95.
“These findings underscore that there is room to further educate clients—not only with respect to increasing longevity, but also more broadly about the value of long-term planning,” said Greg Oberland, Northwestern Mutual EVP. “So we, as an industry, must emphasize that the plan is as important as the goals. And that plan is like a roadmap that helps clients stay on course.”
According to the research:
• Women on average live five years longer than men and feel less financially prepared to live longer lives.
• Men regardless of age are significantly more likely than women to feel financially prepared to live to age 75 (65% vs. 48%), 85 (55% vs. 37%), and 95 (43% vs. 30%).
• Younger Americans (25-59) feel less prepared than older Americans (60+) to live to 75 (47% vs. 79%), 85 (37% vs. 66%), and 95 (29% vs. 52%)
“No matter what age you’ll live to, it’s important to protect the dollars you’ll eventually depend on to provide an income in your retirement years,” Oberland said.
Can’t afford to die…
The findings of the “The Insurance Barometer Study,” an annual study conducted by the Life and Health Insurance Foundation for Education and the Life Insurance and Market Research Association to better understand the public's opinions, attitudes and behaviors regarding life and health insurance are separate but consistent with the “Longevity & Preparedness Study.”
The study found that almost one-third of respondents believe they need more life insurance; that number includes 20% of current policyholders and about half with no coverage.
The two excuses most cited for not purchasing adequate amounts of life insurance are that it is too expensive (83%), and that they have other financial priorities (85%).
Respondents were asked to estimate the annual costs of a 20-year level-term life policy for a 30-year-old and wildly over shot, guessing the cost at $400. Younger adults, those most likely to qualify for preferred pricing, overestimated the actual cost of $150 by a factor of seven.
“Our research has suggested for years that consumers believed they couldn’t afford life insurance, yet they had no idea how much it actually cost,” said Robert Kerzner, president and CEO of LIMRA, LOMA and LL Global. “This is the first study that clearly quantifies the wide gap in consumers’ understanding on the affordability of life insurance.”
The cost of basic term-life insurance has fallen by about 50% over the past 10 years, offers Marvin Feldman, CLU, ChFC, RFC, president and CEO of the LIFE Foundation.
“We know these misconceptions are hindering people from taking steps to get the coverage they need. In essence, life insurance is falling down the priority list,” Feldman said.
According to the study, many are more concerned with paying their mortgage or rent (31%), or losing money on investments (26 %) than with buying life insurance. Interestingly, saving for retirement continued to be the top financial concern (50%).
As the U.S. economy recovers, insurers have an opportunity to help consumers rethink their investment and retirement strategies to ensure they have enough money set aside to maintain the life they’re accustom to and to fund new plans, Feldman observes.
“We want companies and producers to better understand the consumer attitudes and perceptions that are contributing to the gap in coverage that exists today so that they can better respond and help us educate the public about the importance of financial protection and taking personal financial responsibility,” Feldman said.
Technology can play an important role in those educational efforts by creating direct access to quality information and pricing.
“We need to engage younger generations —who live online—more creatively, using the platforms and technology they use in their day-to-day lives, to convey this information so that they know that they can afford the life insurance their family needs,” Kerzner said. "While we have seen some insurers begin to advertise the price of their products in their marketing materials, and others place quoting tools more prominently on their websites to better educate consumers, all insurers should take a look at how they can make it easier for consumers to access this vital information and better understand the real cost of life insurance."
Chris McMahon is the senior editor at Insurance Networking News, a SourceMedia publication.