Life Insurance Personal Finance

Why? If someone (anyone) will suffer a financial burden if (when) you die Last expenses Unpaid bills Mortgage Lost income Education of children Business continuation Estate taxes

How Much? Look at the list on the prior slide and total what your needs would be Many financial planners use 5x annual income as a reasonable approximation if you have a family Needs change during your life

Premiums If premiums are paid with after-tax dollars, the benefits are totally income-tax free (but may be subject to estate taxes) Premiums are based on: Age Sex Health Occupation Type of insurance Amount of insurance Tobacco habits

Things to Consider Beneficiary must have an insurable interest Policy is usually incontestable after two years Suicide during the first two years usually isn’t covered Misstatements of age, health, smoking, etc. on the application can invalidate the policy during the first two years Waiver of premium benefit is often automatic but can be removed Accidental death insurance is usually not a good idea Second-to-die helps with estate taxes Guaranteed insurability option is good if you think you’ll need more coverage later

Things to Consider Insurance is only a promise – and a long one at that Make sure the company making the promise will be there A knowledgeable and helpful agent is worth something But remember how they get paid There is always a 10-day free-look Insurance is for insurance – not primarily for savings

Types of Life Insurance Term Life Insurance Whole Life Insurance Universal Life Insurance

Term Life Insurance “Pure” insurance protection Insures you for a “term” – a period of time Inexpensive while young Prohibitively expensive when old Allows you to purchase maximum insurance for the least cost It will “run out” at some point The most typical type of term insurance has level premiums for 10 years

Whole Life Insurance Insurance with cash value buildup The cash buildup is always tax-deferred, and often tax-free Dividends may be paid, but are not guaranteed Level premiums for a lifetime – guaranteed Investment risk is with the insurance company Moderately expensive while young Comparatively inexpensive while old Assures that you will always have some life insurance if you continue to pay the premium

Universal Life Insurance Combination of Whole Life and Term Less expensive than Whole Life, but fewer guarantees More expensive than Term, but premiums will hopefully stay level Investment risk is mostly with the insured May allow for individual investment selection Variable Insurance – you can have the premiums invested in stock, bonds, real estate, etc.