Life Insurance

Income Replacement

According to a recent survey conducted by LIMRA, a shocking number of American citizens say they do not have life insurance at all, and even more say they do not have adequate coverage. In 2010, LIMRA conducted a survey of American households, and concluded that 30 percent of households in the U.S. - approximately 35 million - do not have life insurance.

Even now that number has remained exactly the same. On top of that, half of insured households claim that they are not adequately insured and need more protection. LIMRA credits a slowly-recovering economy and increasing life insurance rates with the lag in the growth of newly-written policies. However, life insurance is not a luxury - it is a necessity.

Men and women who are the sole providers for their households should realize the benefits of protecting the value of their lives. If a woman is her family's sole provider and passes away, how will they survive without her? If she has life insurance, they will be provided with the means to carry on a similar lifestyle to the one they had before she passed.

Education Costs

Consumers who rely only on the life insurance provided for them by their employer may be stunting themselves, as well. Often, an employer will only provide a policy worth one or two times a person's salary. But what if the policyholder's family then has a mortgage or other debt to pay off? In order to adequately provide for a household, consumers should consider purchasing a term policy from a trusted provider. These policies are often low-cost, and are set for a specific period of time - for example, the 10 years it would take the consumer to pay off his or her mortgage.

Believe it or not, only about 43 % of Americans own individual life insurance - and the average adult has only $45,000 of life insurance. Unfortunately, people think it is ok to rely on work provided life insurance. Relying on the group life insurance provided at your job builds a false sense of security, since coverage is usually insufficient for a family and coverage generally ends when employment terminates. Few people know to protect their own value with life insurance, which leaves their families at huge risk. 

Final Expenses

You see the offers on late night television and in senior magazines: An aging celebrity talks soothingly about cheap life insurance available to older people, veterans or those who dont qualify for standard coverage.

There is no reason to consider this kind of insurance. It is virtually impossible to determine the price, product, contract, caveats and exclusions in such plans without first purchasing the product. Determining what type and amount of life insurance is right for you requires some careful thought. There are over 2,200 life insurance companies in North America - and all insurance companies are not the same, despite what some agents or salespeople may tell you. There are big differences among them, differences that could cost you thousands of dollars in needlessly high premiums or limited coverage. 

Whats more, a number of derivative insurance products are marketed by some aggressive salespeople. These products are usually based on the three major kinds of insurance: term, whole life, and universal. These complex forms are usually designed to fit extremely specialized situations. They often don’t make sense for most consumers.

Wealth Transfer

The issue of what a life is worth is one that claimants and insurance companies usually end up fighting over in court. Here are examples: A 28-year old construction worker earning $35,000 per year was training to become an engineer. At a trial, after his accidental death, an economist testified that the economic loss to his family was $1.6 million. The court awarded $2.5 million for economic loss. Also, a 37-year old maintenance worker was earning $160 per week before he died. At trial, an economist testified that the economic loss to his family was $341,591. The appeals court agreed. And A 44-year old truck driver earned $24,000 per year and was attending classes to qualify for a management position before he was killed in an accident. A court awarded $1.22 million for loss of financial support and services to his family. 

The courts consider not just what a person earns today but also what they will earn in the future - accounting for inflation, pensions, retirement benefits, etc. 

So - your life is worth more than you may think. In addition to economic factors, a court may consider personal and family factors - such as: children’s school performance and socialization skills after they experience the death of a parent, the effect on a family of a surviving parent having to work full time, financial stress and/or job pressures that follow from the death of an income-earning parent or spouse, and emotional impacts of grieving and coming to terms with the unexpected loss of a family member. 

 Although money cant replace a family member who has died, courts will often decide that money offsets the impact of the death on a family’s opportunities. The human life value concept was a way of determining what a family would lose in income by the death of the principal wage earner. By this method, if the insured died, the family could be reimbursed for that loss. 

Level premium term solved three problems for insurance companies: Demographics. With baby-boomers entering their thirties in the 1980s, there was a huge increase in demand for life insurance. The size of the policies purchased grew. The typical policy of $100,000 or $250,000 in the 1970s gave way to policies of $500,000 and $1,000,000 in the 1990s. Cash strapped young families. With inflation increasing housing costs during the 1980s, the size of mortgages outpaced income growth. So, the need for family security and income continuation increased while income for most families remained fairly steady. Falling prices. Term insurance rates started falling and continued through the 1990s and early 2000s. The move to cheaper premiums had a chilling effect on the entire insurance market.  

Don’t make your decision based on cheap premiums thus giving up control of options. Select your policy as if this is the last policy you will be able to purchase. This will help you to avoid poor quality companies, gimmicks, loss leader pricing and requiring medical requalification. 

Most people buy term insurance or one of two reasons: They only need coverage for a certain period of time and don’t plan to convert to cash value insurance in the future, or they can afford cash value insurance now but may convert to cash value insurance in the future.