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times of your life
I A Homeowner Retired or Planning for Retirement
f someone would suffer financially
If you’re like most people, your home If your children are on their own and
upon your death, you need life insurance.
Here are some examples of specific life is your most significant financial your mortgage is paid off, you might
stages or life events that could trigger asset. Life insurance can protect your feel your need for life insurance has
the need for life insurance. investment and spare your family the passed. But if you died today, your
disruption of being forced to find a new, spouse could outlive you by 10, 20 or
less expensive place to live. Plus, it can 30 years. It’s
Married or Getting Married
Most families provide the funds needed to help family certainly
depend on two members maintain the lifestyle to which possible
incomes to make they’re accustomed. nowadays.
ends meet. If you Would your
died suddenly, spouse have
would your spouse to make
have enough drastic lifestyle
money to cover adjustments to
your funeral costs, make ends meet?
credit card balances, outstanding loans Adequate life
and daily living expenses? insurance
help widows and widowers avoid
A Parent or About to Become One
Raising a child is arguably the most financial struggles in retirement.
rewarding thing a person can do in life.
But it’s also one of the most expensive. Single
If you died tomorrow, would your Most single people don’t have a
spouse have the financial wherewithal pressing need for life insurance because
to provide your children with the no one
opportunities you depends
always dreamed on them
they’d have? financially.
From diapers to But there are
diplomas, would exceptions.
there be enough If you’re
income to pay for providing
day care, a college financial
education and If you’ve recently been promoted support for
everything in between? Even parents or changed jobs, it’s a good time to aging parents
who don’t work outside the home need re-evaluate your life insurance coverage. or siblings,
life insurance because they provide Why? You might not realize it, but when or if you’re
services that would be expensive to your income rises, your spending tends carrying
replace, such as child care, transportation to rise, too. Updating your life insurance significant
and household chores. And what about coverage can help ensure that your debt you
single parents? They need life insurance family would be able to maintain its wouldn’t want passed on to family
more than anyone because their children new and improved lifestyle if something members, you should consider
rely on them for everything. were to happen to you. life insurance.
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do you need?
T Here’s how it works. You’ll start by
he toughest part of buying life
How Much Is Enough?
gathering all of your personal financial
insurance is determining how much
you need. Since everyone’s financial information and estimating what your
Through an Insurance
The average insured adult
circumstances and goals are different, family members would need after you’re
American has roughly $169,700 in
there is no rule of thumb that can gone to meet current and future
Most people need help conducting the
detailed financial assessmentabout
life insurance coverage, or needed
tell you with any precision how much financial obligations (see right).
tofour times his ormuch life insurance
determine how her gross annual
to buy. But with a little bit of effort Next, tally up all of the resources
to buy. That’s why they usually all to
income.* When you considerturnthe
you can come up with a good estimate that your surviving family members
an insurance life insurance proceeds
things that agent or other financial
that takes into account your specific could draw upon to support them-
advisor, a fund andexpert who knows
need to licensed how long the
financial situation. selves. The difference between their
the right will be needed, youfigure out
money questions to ask to begin
The best way to determine your needs and the resources in place to
howrealize and what kind of insurance
to much that your true need for
life insurance needs is to have an meet those needs is your need for
iscoverage is often 10, 15 or even 20
right for you.
insurance professional conduct what’s additional life insurance (see below).
times your gross annual income.
called a Financial Needs Analysis. This mathematical equation
seems simple enough, but coming up At Work
with all the inputs can get tricky. Life Insurance Proceeds
Many workplace benefits packages
Plus, you’ll need to factor in the effects include Help Fund Many life
Can an employer-paid basic
of inflation and assumptions about insurance of Expenses
Types benefit, often equal to one
how much your investments will earn or two times your annual salary. While
over the long run. it’s nice
For an estimate that takes all to have, it ✓ Funeral costs
these variables into account, you may not be ✓ Uncovered medical
can visit a variety of insurance needs enough to expenses
calculators on the Internet (including cover your ✓ Mortgage and
one from the nonprofit Life and Health other debt
Insurance Foundation for Education you typi-
✓ Estate settlement
at www.life-line.org/lifecalculator). cally can’t costs
Just remember that online calculators take it with
are no substitute for the advice you’ll you if you
get by meeting with a qualified change jobs. Ongoing Expenses
insurance professional. If you want ✓ Food
Calculating Your Life Insurance Needs Transportation
Current and savings,
future financial investments and Future Expenses
life insurance ✓ College
you already own ✓ Retirement
*Source: LIMRA International.
This worksheet can help you get a general sense of how much life insurance you need to protect your family. However, you should
consult with a qualified insurance professional before buying any insurance products. The worksheet assumes you died today.
1. Total annual income your family would need if you died today $____________
What your family needs, before taxes, to maintain its current standard of living
(Typically between 60% - 75% of total income)
2. Annual income your family would receive from other sources $____________
Spouse’s earnings (Social Security may be available)
Income to be replaced - Subtract line 2 from line 1
Capital needed for income - Multiply line 3 by appropriate factor in Table A
5. Funeral and other final expenses $____________
Typically the greater of $15,000 or 4% of your estate
6. Mortgage and other outstanding debts $____________
Include mortgage balance, credit card debt, car loans, etc.
7. College costs for each child, in today’s dollars $____________
2005-2006 average 4-year costs: Private $125,256; Public $58,1141
Capital needed for college - Multiply line 7 by the appropriate factor in Table B
Total capital required - Add lines 4, 5, 6 and 8
10. Savings and investments $____________
Bank accounts, money market accounts, CDs, stocks, bonds, mutual funds, etc.
11. Retirement savings $____________
IRAs, 401(k)s, Keoghs, pension and profit-sharing plans
12. Present amount of life insurance $____________
Include group insurance as well as insurance purchased on your own
Total income-producing assets - Add lines 10, 11 and 12
Life insurance needed - Subtract line 13 from line 9
Table A Table B Prefer to Use an
Years income Years before
needed Factor college Factor
5 .85 ☛ Visit the nonprofit LIFE Foundation’s
life insurance needs calculator at
20 15.4 10 .74
www.life-line.org/lifecalculator. It will ask
you for similar inputs and will even allow you
to vary certain assumptions like the investment
20 .56 rate of return and inflation rate.
Important note: Inflation is assumed to be 3%. The rate of return on investments is assumed to be 6%. Changing either or both of these assumptions would
change the results. 1Annual Survey of Colleges, The College Board, 2006.
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What kind should you buy?
T Term or Permanent
he most basic feature of a life
insurance policy is the death benefit:
Length of A specified term, typically Until age 100 or later, as long
the lump-sum payment your beneficiaries
coverage 20 years. as premiums are paid.
would receive if you die. It’s the core
reason to own life insurance—but not the Premiums Based on your age and Initially higher than term
health, but typically lower
only one. Some types of life insurance offer premiums, but often level
than those of permanent for life.
other features that might play an important insurance.
role in your financial game plan, such as
the ability to accumulate cash value that Cash value None. Accumulates over time on a
grows over time.
Key advantage Typically offers the highest Offers lifelong protection and
Term Insurance death benefit for the lowest tax-deferred savings.
Life insurance that pays only a death
benefit is called term insurance. It provides Key disadvantage Any number of factors (age, Initially larger premiums could
protection for a specific period of time— health status, etc.) could make it difficult to buy amount
the “term”—and is designed for temporary make it too expensive to of protection needed.
continue coverage after the
circumstances. It makes the most sense
when your need for coverage will disappear
at some point, such as when your children
Permanent insurance falls into four main categories.
graduate from college or when a debt is paid off. The most
Whole life is the simplest and most common option.
common term policies provide coverage for 20 years, but
Premiums remain fixed for life, and the death benefit and
they can run the gamut from one-year policies to terms of
rate of return on your cash value are guaranteed. With
30 years or even longer. Typically, term insurance offers the
variable life, you can seek potentially better returns by
greatest amount of coverage for the lowest initial premium
allocating your fixed premiums among stocks, bonds and
and is a good choice for young families on a tight budget.
guaranteed-return accounts. Universal life offers the
Permanent Insurance flexibility of varying the amount of your premium payments.
It also offers the certainty of a guaranteed minimum death
Permanent insurance offers lifelong protection, and you
benefit as long as your premiums are sufficient to sustain it. If
can accumulate cash value on a tax-deferred basis. This
you do not maintain those minimum premiums, your death
cash account can be used for a variety of purposes, from
benefit can be reduced. Variable universal life premium
helping you out of a tight financial spot, to providing funds
payments are also adjustable after the first one, subject to the
to take advantage of an opportunity, to supplementing your
minimum needed to keep the policy in force, and you can
retirement income. The downside? Initial premiums are
allocate them among investments that offer varying degrees
considerably higher than what you would pay for a term
of risk and reward.
policy with the same face amount.
Features Unique to Permanent Insurance
Access to Cash Flexibility Stable Premiums
A policy’s cash value can be If you need to stop paying With many types of permanent
surrendered, in total or in part, premiums, the cash value can keep insurance, premiums will remain
for cash that can be put toward your insurance protection in force constant or stable over your lifetime.
important uses like a child’s for a period of time. With term insurance, premiums will
education, a business opportunity increase substantially as you age.
or supplemental retirement Guaranteed Coverage
income. Also, you can borrow from As long as you pay your premiums, Tax Advantages
your insurer at favorable rates— you’ll have the coverage for life and Cash value accumulates on a
without credit checks or other won’t need to worry about being tax-deferred basis, just like assets
restrictions—and use the cash unable to afford coverage if your in most retirement and college
value as collateral. health deteriorates. savings plans.
LIFE INSURANCE ISN’T
FOR THE PEOPLE WHO DIE.
IT’S FOR THE PEOPLE
When Michael Rausch was just one
year old, his mom, Julie, was diag-
nosed with a malignant brain tumor.
The news devastated his father, Bill,
and severely affected the concrete
business he and Julie ran together.
Sadly, the company failed shortly
before Julie’s death. But the story
doesn’t end there. Life insurance
meant Bill was able to restart the
business and provide a secure and
loving home for Michael.
Are you prepared should the very
worst happen? Without adequate life
insurance, your financial plans may
be just a savings and investment
program that dies when you do.
Consult a qualified insurance
professional to help you create
a plan that will continue to
provide for the ones you love.
A NONPROFIT O RGANIZATION
The Life and Health Insurance Foundation for
Education is a nonprofit organization dedicated
to helping consumers make smart insurance
decisions to safeguard their families’ financial
futures. For more information about life insur-
ance or tips on finding a qualified insurance
professional, visit www.life-line.org or call