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Do You Have Life Insurance (or Have Enough)?

Have you ever wondered if you need life insurance beyond what you might get through your benefit plan? Most people don’t have life insurance that they’ve purchased on their own. If you are considering life insurance for yourself and your family, here are some questions to ask:

What Does Life Insurance Do?

Life insurance can help ensure your loved ones’ financial security by providing a lump sum, which is generally tax free, at your death. This money can be used for immediate expenses, such as the funeral, which at today’s costs are around $7,000 at minimum. This death benefit can also be used down the road, such as to help pay off a child’s college loan. According to the Institute for College Access and Success, the current average debt at graduation ranges from $4,000 to $58,000. The death benefit can also contribute to other needs, such as a spouse’s retirement.

What Are the Types of Life Insurance Policies?

There are basically two types of life insurance: cash-value (whole life) insurance and term life insurance. Cash-value insurance is designed to provide coverage for your entire life, whether you live to age 35 or 95. This type of insurance, which is more costly than term insurance, earns interest, can be borrowed against (reducing the death benefit) or can be cashed in by the policy holder (ending the death benefit payout). Whole life insurance and variable life insurance are two examples of cash-value insurance.

Term life insurance covers the holder for a set period of time – for example, over the 25 years you’re raising children. The purpose of term insurance is to provide security for your family until the reason for it is no longer necessary. For example, someone may choose not to renew a term life policy once their kids are grown and self-sufficient. Many term insurance policies have renewable clauses. Some can also be converted to a cash-value policy if the policy holder finds they’re not financially secure enough to be without life insurance.

How Much Does Life Insurance Cost?

In addition to the type of insurance, key factors that include gender, health, lifestyle and age help determine the cost of an insurance policy. According to the JRC Insurance Group, after age 40, term insurance rates increase by at least 10 percent each year. For example, the average annual life insurance rate for a 30-year-old man purchasing a 20-year, $500,000 term policy will be around $230. That same policy will cost a 40-year-old man about $100 more. If he waits until age 50, the rate triples from what he would have paid at age 20 to more than $850 a year. Depending on the policy and circumstances, payment options can be monthly, quarterly, semi-annual and annual.

How Do I Apply for Life Insurance?

Depending on the company and the policy you are applying for, you may have to answer health-related questions or undergo an in-person medical exam. The insurance company will review your application and it’s important to be honest. Failure to disclose a medical condition or medications you take now or have taken in the past can lead that company to deny you coverage. It may also make it more difficult for you to get a policy from a different company.

Life insurance isn’t a necessity, but should be something you consider based on your family’s needs and financial situation. You can read more about other important areas of estate planning in our September 2014 article, “Draft Your Will Today, Protect Loved Ones Tomorrow” and in our August 2015 article, “How Good Is Your Longer Life Going to Be?”.

[Janet Lubman Rathner]

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