Bear market ups need for life insurance

copy and post by Mei Ling Lin

With the unprecedented generational bear market that has wreaked havoc on investors' portfolios, now is a good time to review your life insurance and determine if you have enough coverage.
Remember that you depend on the combination of your investment assets plus your life insurance to make sure your dependents are financially secure should you die prematurely.
How much life insurance do you need? Ask 10 professionals and you'll likely get 10 different answers. If you have people who are dependent on your income for their support, use the following three-step process as a "quick check" of your life insurance needs:

Step 1: If you are the sole income provider, multiply your annual income by 0.80. This results in reducing your income by 20 percent. The reason you do this is because there is one less spender in the household (you!). Note that if both you and your spouse work combine both incomes and multiply by 0.80.
Step 2: Divide your answer in Step 1 by the rate of return you would reasonably expect to earn on the life insurance proceeds once they are invested. Your answer here indicates how much money you will need in order to continue the necessary income stream to your surviving family.

Step 3: Subtract any savings or investments you already have from your answer in Step 2. This is the `ballpark' amount of life insurance you should own. Let's look at an example. Edward and Jean Anderson have two children. Edward earns $100,000 a year and Jean stays home to raise the children. The parents assume that they could earn 6 percent on investments; they have $45,000 in personal investments and $75,000 in their retirement plans.
First, multiply Edward's income times the "one less spender factor" to calculate the adjusted income need ($100,000 x 0.08 = $80,000).
Second, now divide the adjusted income need by your expected rate of return on investments ($80,000 x 0.6 = $1,333,333). This amount of money invested at 6 percent will provide the needed $80,000 per year for Jean and the children.

Finally, subtract the total of all current investments from the total capital needed ($1,333,333 - $120,000 = $1,213,333). If Jean was employed and planned to continue working after Edward's death, you would also subtract her income from your answer in step one.
You would also need to repeat this exercise for Jean to determine how much life insurance is needed on her life. For a non-working spouse, estimate the costs to replace that spouse's services such as nanny and housekeeper and multiply those costs times the number of years the services will be needed.

The answer you get by using this three-step process should only be used as a rule of thumb. Once you have the number, you should personalize the solution to your particular situation.
For example, you may want to increase the amount of insurance to help cover the costs of funding college expenses for your children. If your goal is to provide a lifetime income for your dependents, additional insurance will be needed to offset the ravages of inflation.

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Life Insurance and Beneficiaries

Posted by: Dan Hughes

Life insurance policies are very difficult things to choose to get. For many people, life insurance policies are useless and are not necessary to have. However, if you are a person that does, in fact, need to write up a life insurance policy, there are several things that they need to consider, such as what type of policy. Should you get term or permanent? If you need permanent, then you need to consider among whole, universal, current assumption whole, and variable life insurance. Another thing, which is as important, if not more, to decide is who your beneficiary will be.

The beneficiary of a life insurance policy is the person who receives the payment of the amount of insurance after the death of the insured. It’s often easy to pick the “natural choice” as your beneficiary or beneficiaries, which includes your spouse or your children. However, these may not always be the best options. As with your spouse, there is a possibility of divorce, and, if you do not update your policy, then she and possibly a new spouse will reap the benefits. Similarly, with children, depending on the wording, it may be accidentally including or excluding certain people. Probably the safest choice for your beneficiary is your lawyer, if you have one, and draw up a list of how you want the money to be distributed. The lawyer will make sure that your money is handled the way you intended.

It’s always important to remember that the wording is the most important part in the policy. If it is not specific, then, as mentioned before, people may be included or excluded from the policy. By just stating children as beneficiaries, you may be leaving our grandchildren when you intended for them to get some money.

Source 1 Source 2 Source 3

Term Life Insurance

Posted By Ken Smith

Investing in Life Insurance

By: Dan Hughes

Life Insurance for Senior Citizens

By Michael Collins

Many people do not have life insurance. A substantial amount of the uninsured are senior citizens. Many seniors believe that they are too old to get life insurance, however it is common to see advertisements for life insurance policies that are reserved for seniors. Often, uninsured senior citizens desire life insurance in order to cover medical or funeral expenses once they die.

Typically, the older a person gets, the higher their life insurance premiums are. However, this is not necessarily the case with senior-specific life insurance. One website states that "Policies are general short term, and only pay a limited death benefit for the first two years. After two years, the full price of the insurance is payable to your beneficiary at the time of your death...Life insurance for seniors is available for as little as $15 a month. Usually, these inexpensive policies offer a low death benefit...Typical deferred life insurance policies offer as little as $5,000 coverage and go up to $100,000."1

In the past, many insurance companies would not provide life insurance for senior citizens. However, today, many states require that companies provide them coverage. Many life insurance policies for seniors have cash value so that they may be borrowed against or cashed in by the policyholder if they so choose.

References-
1- http://www.mozdex.com/life-insurance-for-seniors/
http://www.financialone.com/insurance/seniors
https://www.newretirement.com/Services/Life-Settlement.aspx

Ten Things You Should Know About Life Insurance

Article by: CNN Money
Posted by: Madeleine Brooks

1. All policies fall into one of two camps.

There are term policies, or pure insurance coverage. And there are the many variants of whole life, which combine an investment product with pure term insurance and build cash value.

2. Insurance is sold, not bought.

Agents sell the vast majority of life policies written in the U.S. because the life insurance industry has a vested interest in pushing high-commission (and high-profit) whole-life policies.

3. Whole life is expensive.

Policies with an investment component cost many times more than term policies. As a result, many people who buy whole life often can't afford an adequate face value, leaving themselves underinsured.

4. Whole-life policies are built on assumptions.

The returns quoted by the agent are simply guesses - not reality. And some companies keep these guesses of future returns on the high side to attract more buyers.

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Deciding Between Whole Life and Term Life Insurance

By Michael Collins

When choosing life insurance, one of the most important decisions that one must make is whether to purchase a whole life policy or a term life policy.

Whole life policies, once enacted, will cover the policyholder from that day until the day that they die. This is good for policyholders because they will no longer have to worry about dying unexpectedly and being uninsured. However, this comes with a price. Whole life policies are far more expensive than term policies, because lifetime coverage guarantees payment upon the death of the policyholder. Whole life insurance is essentially a savings account. The policyholder pays the insurance company throughout the duration of their life, who will pay the beneficiary upon the policyholder's death. Whole life policies are considered assets, so they can be borrowed against or surrendered early for cash.

Term life insurance are generally considered to be a more cost-effective option, especially for younger people. Terms can be anywhere from one to thirty years. Because the policy can expire, there is a chance that the insurance company will not have to pay, so rates are lower; although they get higher with age. A major drawback to term, however, is that it is not considered an asset and has no cash value.

Overall, both types of life insurance have advantages and drawbacks. However, I believe that term life insurance is superior, mainly due to the cheaper rates. Whole life insurance may be attractive, but the money that would go toward the high rates could simply be invested or put in a savings account by the policyholder and have a similar effect.

References:
http://www.wisebread.com/choosing-life-insurance-term-or-permanent
http://insurance.lawyers.com/Choosing-Life-Insurance.html
http://www.smartmoney.com/personal-finance/insurance/term-or-whole-life-8011/

Things to Know When Buying Life Insurance Policy

Posted by Shu Zheng

Life insurance is classified into two categories – temporary and permanent. Temporary life insurance is also known as term insurance, and the permanent insurance is the combination of universal, whole life, and endowment life insurance. When people purchasing a life insurance, it is important to know the types of insurance as well as some bargain strategies.

Term insurance, which provides coverage for a specific period of time, does not accumulate cash value. The three key factors to be considered in term insurance are: face amount (protection of death benefit), premium to pay (cost to the insured), and length of coverage (term). Two common types of term insurance include annual reward term and mortgage insurance (Wikipedia).

Permanent insurance remains in force until the insurer fails to pay the premium. The policy cannot be canceled for any reason except fraud in the application, and the cancellation must incur within a specific period of time required by law. Unlike term insurance, the permanent one carries cash value, and the owner can access money by withdrawing, borrowing cash value, or surrendering the policy. Now as mentioned earlier, the permanent insurance exists in three basic forms: whole life, universal, and endowment. Whole life is the most common one among the three. The advantages of this policy include guaranteed death benefits, cash values. Even though premium is higher than terms, but the accumulative premiums are equal if policy is kept in force. Universal insurance is a new insurance product with greater flexibility and higher interest return. It exists in forms of interest-sensitive, equity-sensitive, and variable universal, all of which have close relationship with the market (Wikipedia).

When buying a life insurance, the agents generally want to push the sell of whole life because of high premium and commission. Although insurer can keep whole life policy for the rest of their life and build up cash in them with tax-free advantage, the high fees and commissions built into whole life along with surrender charges often leave people with little cash value after 10 or 15 years. So it is generally recommended for the average public to buy 20- or 30- years term policies since it is no long difficult to find (Buying Strategies). However, another factors such as health, smoking condition, income and ages of family members also have to be taken for account in terms of the coverage length. When it comes the time of purchase, people can consider providers such as Metlife, Prudential Financial, New York Life Insurance, TIAA-CREF and so forth (Which Companies).

Sources:

Wikipedia, http://en.wikipedia.org/wiki/Life_insurance#Types_of_life_insurance

Buying Strategies, (n.d) CNN Money, Jan. 26, 2009. http://money.cnn.com/magazines/moneymag/money101/lesson20/index3.htm

Which Companies, (n.d.) Insurance Information Institute, Jan. 26, 2009.

http://www.iii.org/individuals/life/facts/largest/