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Life Insurance

By Gwen Moran
2010-07-14 10:24:00

It’s not something we like to think about, but insuring your family’s future is important.

When families start planning to expand, prospective parents usually talk about how much room they will need in their house or whether they should buy a new car to accommodate another tiny person. One conversation that’s often overlooked is if the family has adequate life insurance.

“If you have the financial need, you need to take care of it,” says Tony Steuer, author of Questions and Answers about Life Insurance. “It’s a two income world, generally. If something happens to the wage earner, the impact can be devastating.”

In most cases, families need to buy life insurance to replace the lost income in the event of a wage-earner’s untimely death. While families often believe that they are covered by death benefits offered by many workplaces, Bret Benham, president of TIAA-CREF Life Insurance Company, says that is usually not enough because the benefits may be capped at a year’s income or may not take into consideration all of the needs of the family.

“Understanding what money is needed to replace lost income is a good start,” he says. “However, there are a number of other considerations, such as how much money you will need to take care of your affairs.”

Which type to buy
In addition, families must look at the type of life insurance they will purchase, says Titus Bocseri, corporate vice-president of New York Life Insurance. New products are being developed all the time and families need to examine which are best suited to their circumstances.

“For example, we offer family protection insurance that is designed for the entire family, especially younger families that may lack enough insurance coverage. It’s one policy, and some of the benefits can be increased without proof of insurability,” he says. “Our research indicates that one out of three middle class families feels the need for more adequate life insurance coverage.”

How much is needed?
Benham says that one rule of thumb for calculating the amount of insurance you need is to estimate the total amount of income that would be lost for a five to ten-year period. For example, someone earning $50,000 should plan on between $250,000 to $500,000, depending on expenses and lifestyle expectations. In addition, if the deceased spouse’s or partner’s responsibilities in the household – from taking care of children to mowing the lawn – will need to be replaced, financial consideration should be given to that, as well.

Insure early
Families who are planning for a new addition should consider obtaining life insurance before pregnancy, says Steuer. Often a woman can get life insurance through the end of her first trimester, he advises. After that, there may be a waiting period following the baby’s birth.

Steuer is an advocate of term life insurance, which is less expensive than other types of insurance. Term insurance is renewed annually for a period of time – for example, more than 30 years. After the specified period, the insurance is not renewable and it has no cash value. Bocseri says that some New York Life policies convert to whole-life policies, which have a cash value and can be used as investment vehicles. It’s best to look at the individual policies, their benefits and their costs, and then choose the one that best fits your life.

“Insurance is all about transferring risk to an insurance company,” says Benham. “Make sure you understand what is guaranteed under the contract and what is not. Also, make sure that you select an established insurance company with good financial ratings. You want to be sure that your policy is backed by a company with an outstanding track record.” 

 

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