Know the Facts of Life (Insurance)

" Man reading documentLife insurance is one of the pillars of personal finance, deserving of consideration by every household."

Forbes says in a recent article, "10 Things You Absolutely Need To Know about Life Insurance," that despite its nearly universal applicability, there's still a lot of confusion—even skepticism—about life insurance. This may be because of life insurance's complexity, the image of those who sell it, or our avoiding the topic of death.

With the proper information, you can simplify the decision-making process and arrive at the right choice for you and your family.

Here are some of the 10 things you absolutely need to know about life insurance:

You really need it if you are someone's spouse or the parent of dependent children. If you are retired or financially independent and no one would suffer financially if you weren't around—OK, you don't need life insurance.

Life insurance doesn't just slap a monetary value on your life. Rather, it helps compensate for the financial consequences that accompany the loss of a wage earner's life. It can help those left behind cover the costs of final expenses, outstanding debts and lost income. After an unexpected death, life insurance can lessen financial burdens at a time when surviving family members are dealing with great loss. It can also give peace of mind to the policy holder.

Life insurance is a risk management tool, not an investment. There are some life insurance policies that have an investment feature, but they're not really an optimal investment. There are usually better and more efficient strategies.

There are two kinds of life insurance—term and permanent, also known as whole life insurance. Term life is the simplest, the least expensive, and the most widely applicable. The life insurance company bases the policy premium on the probability that the insured will die within a stated term—typically 10, 20 or 30 years. The premiums are guaranteed for the length of the term, then the policy becomes cost-prohibitive to maintain—or you can decide to let it lapse. This means that you could pay premiums for decades and "get nothing out of it." That's good news because it means you were protected during that time.

Permanent life insurance includes the same probability-of-death calculations but also includes a savings mechanism, often referred to as "cash value." It's designed to help the policy exist into perpetuity. Whole life has an investment component, and variable life has investment options more like mutual funds. Universal life is a less expensive permanent life insurance alternative with added flexibility but increased interest rate risk for the owner.

Choosing the right life insurance policy doesn't have to be complicated. It's better to set up something you can work with and understand than to postpone such an important decision due to the policy's intimidating complexity. In many circumstance, a good rule of thumb is to purchase enough life insurance to replicate all or most of the insured's income for a term as long as the household expects to need that income.

Open and honest discussions about planning for an unexpected death can be surprisingly life-giving and purchasing life insurance is an important part of your long-term and comprehensive financial plan.

Reference: Forbes (January 5, 2016) "10 Things You Absolutely Need To Know About Life Insurance"


Why You Should Plan Ahead For Your Own Death

Bigstock-plan-ahead--management-concep-33055352 (1)Most people would probably say that planning ahead is generally a good idea. However, when it comes to what might happen at the end of their own lives, most people do not plan ahead, even though there are very good reasons to do so.

Ask any probate attorney or doctor whether people should plan ahead for what will happen at the end of their lives, and the answer will almost certainly be yes. Nevertheless, most Americans do not follow the advice of these experts who deal with end-of-life scenarios on a daily basis.

Survey after survey reveals that most Americans do not have estate plans. Recently, the Huffington Post published “5 reasons to Plan Ahead for the End-of-Life.” A doctor gives reasons why you should plan ahead, including:

  • Financial Legacy – If you do not have an estate plan, then your estate will be divided according to a default law that determines who gets what. Any wishes that you have about what will happen to your assets will be disregarded.
  • Minor Children – Planning ahead allows you to determine who will be the guardian of your minor children instead of allowing a court to have the sole say in the matter.
  • End-of-Life Care – If you plan ahead with advanced medical directives as part of your estate plan, then you can decide what care and treatments doctors will give you in your final days.
  • How You Want to be Remembered – If you want a particular type of funeral, you can plan ahead for it and make arrangements.
  • Make Things Easier on Your Family – Anytime a loved one passes away is stressful enough for family members. If you do not plan ahead, you add to that stress exponentially.

Just like you turn to your doctor to monitor your health, consult an experienced estate planning attorney to ensure you have all of the above matters covered.

For more information about estate planning, please visit my estate planning website.

Reference: Huffington Post (September 4, 2015) “5 reasons to Plan Ahead for the End-of-Life.”

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