Life Insurance
Do you have some type of life insurance? If so, do you understand your policy and know how much coverage you have? If not, are you planning on buying life insurance one of these days? A 2007 report by Axa Equitable found that Americans were more concerned about risks covered by life insurance such as death and financial hardship than people in 10 other countries. (Axa Equitable)
However, these findings don’t always translate into action. It is estimated that between 18 and 38% of US adults do not have life insurance and many who have a basic policy are seriously underinsured.
Does everyone need life insurance?
This really depends upon your personal circumstances. If you are single with no dependents, you may not need life insurance. But if you have a spouse or children, you will probably want to have life insurance to protect them in the event something should happen to you.
Although many people think life insurance is something only the main breadwinner needs to carry, this is not always the case. If your spouse is caring for small children and running the household, s/he may also need life insurance, as experts estimate that replacing this type of care would cost approximately $135,000 a year. (Baltimore Life)
If I have life insurance at work do I need more?
In the US, people are more likely to have life insurance through their employers than in many other countries. Unfortunately, the number of employers routinely providing life insurance is Mortgage Life Insurance. In 1991, almost ¾ of employees had some kind of group life insurance. By 2004, this figure had dropped to 52%, as employers cut benefits and costs. (Life Help)
In addition, it is worth noting that most employee life insurance policies are low-Life Insurance policies, typically providing 1-3 times annual salary. (Axa Financial) While this would provide for short-term needs, it is not likely to be enough to provide for your family’s long-term needs.
How much life insurance do I need?
The amount of life insurance that you need depends upon several factors such as your income, the size of your family and your financial needs. Do you have children that will need a college education? Do you have additional amounts of savings or investments that your family can use to cover living expenses? Do you have an outstanding mortgage or a number of debts? Will your spouse work or be needed at home to care for children?
There are some experts that recommend using a multiple such as 10 or 20 times your annual salary to provide adequate protection for you family’s needs.(Insurance Information Institute) According to LIMRA International the average amount needed is around $450,000 and the average life insurance amount owned is around $130,000.(New York Life) This leaves many families dangerously underinsured.
John Dressner, VP of the Life and Health Insurance Foundation for Education (LIFE) says “There is a growing crisis in the US of people not having the life insurance coverage they need to make sure their loved ones would be ok financially if something were to happen to them.” (Insurance Web) If you would like to determine how much insurance you need for your particular circumstances, you can find numerous “insurance calculators” online or you could consult an independent insurance agent or your financial advisor.
What kind of life insurance is available?
There are 2 main types of life insurance available in the US, although there are further subdivisions of both. These are term or “temporary’ life insurance and whole life or “permanent”.
Term life insurance is taken out for a specified period of time, usually 10 or 20 years. You pay premiums monthly and if you were to die within the term period, the insurance company would pay the benefit amount you chose to your family. If you do not die within the term, the policy expires and you receive nothing. There is no cash value for term insurance policies.
With whole-life or permanent policies, you pay monthly premiums for life and whenever you die; your beneficiaries receive the benefits. Premium payment amounts are set when you take out the policy and remain the same for the life of the policy. Whole life policies also accumulate a cash value and can be borrowed against or surrendered for cash.
There are advantages and disadvantages to both types. If you are unsure as to which type of life insurance is right for you, you may want to discuss this with a financial advisor or independent insurance agent. Approximately 56% of life insurance policies sold in the US are sold through independent agents, who have access to the entire range of life insurance products on the market. (Insurance Information Institute)