LIFE INSURANCE. How to assess your life insurance needs By Ginger Applegarth

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1 LIFE INSURANCE Insurance is not specifically defined in Scripture; however, the principle of future provision is found in Ecclesiastes 6:3. If a man fathers a hundred children and lives many years, however many they be, but his soul is not satisfied with good things and he does not even have a proper burial, then I say, 'Better the miscarriage than he.' God said that we are to be responsible for our families, even in the event of our untimely death. The fact that we do not know exactly when we are going to die and that we may not have the economic resources to provide for our families after death is good reason for buying life insurance adequate enough to provide for the family in case of death. How to assess your life insurance needs By Ginger Applegarth What s your life worth? If you ve shopped for life insurance, that s sort of what you re trying to find out. Chances are you ve heard different people suggest vastly different calculations on how to reach the right number. The problem is that every person's situation is different, and although your financial situation may look the same as your colleague s in the office next to you, your needs are different. MSN Money's life insurance Needs Estimator ( is based on a time-tested method used by reputable agents and financial planners for decades: the capital needs analysis. The beauty of the capital needs analysis is that it takes into account all of the quirks that make you and your situation unique. Additional web pages: Calculating how much life insurance you need shouldn t be a guessing game. You can assess your needs -- and the needs of your loved ones -- and make a calculated assessment. The Needs Estimator walks you through typical costs like a funeral (the average funeral in the U.S. is now more than $6,000, though the true sum can easily reach $10,000 once a burial plot, flowers and other costs are included), to the atypical, such as the special needs slush fund most people should include in their insurance calculations. (A safe estimate is about $20,000 to $25,000 to cover unexpected one-time and ongoing expenses.) Most important factor is your dependents A lot of insurance advice seems to be based on your marital status to determine your insurance needs. That's not exactly the issue. The most important factor is if you have any dependents -- those who are (or who will be) counting on you to support them, either partially or fully -- and how many dependents you have. Here are other major factors to consider:

2 The kind of lifestyle you want to provide for your family. Your non-working spouse, who wouldn t have an income if you died. Your working spouse, who would "retire" to raise your children if you died. Other sources of household income (such as a second paycheck). Any debts that you want paid off (such as a mortgage, car loan or credit card). Your family s college expenses. Any special needs, such as a handicapped child or a child who will never be selfsupporting. Your parents, who may eventually become financially dependent on you. Even if you re wealthy and think you might not need coverage, think again. You still may need life insurance if your taxable estate approaches $1 million if you re single or $2 million if you re married -- in which case you should have already done proper estate planning to minimize estate taxes. (For 2010 and beyond, the estate tax is repealed.) If either of the above applies to you, and your estate doesn t have enough liquid assets to pay estate taxes, you need more insurance. The Internal Revenue Service will want cash from your estate within nine months, and you might have to invest in a life insurance policy to do this. Childless now, but what about the future? If you re married and don t have children, your insurance needs could vary from almost nothing to needing heavy coverage. If your spouse can live on his or her income alone and you don t have a mortgage or don t care whether it s ever paid off, your only need may be to cover any final expenses incurred at your death. You still should consider the possibility that your parents may depend on you in the future, or that you may want to help pay for college costs for a family member (a niece or nephew, for example). Special needs of divorced people, singles Divorced people have special insurance needs. If you fall into that category, you d better dig out your divorce agreement. It may stipulate that you have to keep a certain amount of life insurance in force for your ex-spouse or to pay your part of your children's education. Even if your divorce agreement doesn t require it, if you have children, you should have life insurance in order to leave them an inheritance and to cover your part of their college costs. Single people are often told that they don t need insurance, or that the small policy that comes with their work benefits is enough. In many cases, that s absolutely right. If you lead a simple life with no mortgage and no significant other, a life insurance policy may just be an unnecessary expense. There are certain instances where you may need it, however. If one of these scenarios applies to you, start thinking about life insurance: You have a mortgage that is more than the value of your house. A relative has co-signed on your mortgage; having it paid off immediately at your death means he does not have to make monthly payments until your home is sold, were you to die with not enough insurance coverage.

3 You have a friend or relative to whom you want to leave money. You have bought a house with your live-in partner and you have an agreement that each person s share of the mortgage is to be paid off upon his or her death. Your parents won t be able to manage financially if you re not around. You want to leave money to a charity or other nonprofit organization.

4 How to Buy Life Insurance Buying life insurance is an easy way to protect your family after you're gone. If you know what to look for, you can get great coverage at a price you can afford. There are many excellent resources on the internet. We provide some very basic guidelines with the information below, and we emphasize they are guidelines. Every person has a unique situation and must discuss and review their situation with a trusted agent. Why buy life insurance? Topping the list of reasons to buy life insurance is the financial protection life insurance offers. If you're single and just starting out, you may not need life insurance. But as you take on more responsibilities and your family grows, your need for life insurance increases. The proceeds from a life insurance policy can replace the income lost to your family upon your death. You might also want to buy life insurance to pay off debts and expenses, leave money to charity, and cover final and estate expenses. Choose term or cash value There are two basic types of life insurance: term life insurance, which provides life insurance coverage for a specified period of time (the term), and cash value (permanent) life insurance, which combines a death benefit with a cash value component. Cash value insurance offers lifetime protection, while term insurance may be the most affordable option if you're buying life insurance mainly for the financial protection it offers, and your need for life insurance is temporary (until your children leave the nest, for instance). Some term policies (called "convertible") will permit you to exchange the term life insurance policy for a permanent one at some point. Decide how much coverage you'll need The amount of life insurance protection you should buy depends on how much income your survivors will need, how much you own and owe, and the amount of other life insurance available to you. If you're married, both you and your spouse should consider buying life insurance. One of the easiest ways to estimate how much life insurance protection you should buy is to use a life insurance needs calculator. Pick a number between 1 and 30 Term life insurance is usually offered for periods ranging from 1 to 30 years. Consider choosing a term that matches your need for life insurance protection. For instance, if your main reason for buying life insurance is to protect your 7-year-old twins until they're out of college, you'll want to buy a policy with a term of at least 15 years. How much will it cost? How much you pay for life insurance will depend on a number of risk factors, including your age, your health, whether you use tobacco, your family health history, and the type and amount of life insurance you're buying. Keep in mind that the premium you're quoted initially will increase later. For instance, when you buy term life insurance, rates are guaranteed only until the end of the term (annually for annual renewable term or at the end of a specified number of years for level term). While most life insurance policies can be renewed at the end of the term, you'll pay a higher premium for coverage. Shop around When comparing quotes for life insurance, make sure that the insurance coverage you're

5 comparing is similar. And remember, any policy that you buy is only as good as the company that issues it. Find out what rating the company has received from major ratings services, such as A. M. Best or Standard & Poor's. These companies evaluate an insurer's financial condition and claims-paying ability. The company giving you a quote should provide you with this information. You can also contact your state's department of insurance to find out more about an insurer's record. Submit an application Once you're ready to purchase a life insurance policy, you'll fill out a life insurance application that contains questions about your current and past health history and lifestyle. You'll generally be required to take a medical exam, arranged and paid for by the insurance company. The answers you give on your application, along with the results from the medical exam and your past health history, will help the insurance company determine whether to offer you a policy, and if so, at what price. Learn the lingo Maybe a life insurance contract isn't as exciting as a best-selling novel, but read it anyway. Policy provisions, the amount of benefits, the premium, and other charges you'll pay will be listed along with other important information such as the beneficiaries you've named and the premium guarantee period. Make sure you understand everything in the policy. Under the laws of your state, you may have a "free look" period (typically at least 10 days) during which time you can cancel the policy without penalty. Please note that this description/explanation is intended only as a guideline Additional websites: