A Quick Guide to Buying Life Insurance

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Most people don't think about life insurance until they absolutely have to. That usually happens when their financial well-being becomes increasingly intertwined with someone else's, which can come with getting married, buying a home or, the big one, bringing a child into the world.

"It is one of those things that people put off," said a local estate planning attorney in Sarasota, FL. "Most people I talk to are pretty surprised about the amounts they need and often think because they have coverage at work, it's enough."

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That's hardly ever the case. So consider this a back-to-basics guide that will help sort out what you need as quickly and efficiently as possible.

What type of life insurance do I need?

Most people are best served by a plain-vanilla term insurance policy. As the name suggests, these pay a set amount if the policy owner dies within the boundaries of the term, typically somewhere between 10 years and 30 years.

Term insurance is simple, the policy features generally don't vary greatly across providers (other than the cost), and it's cheap compared with other types of insurance.

A healthy 30-year-old woman might pay $38 a month for a $1 million policy with a 20-year term (men pay about $10 more). A 45-year-old woman might pay about $48 a month for a $500,000 policy with a 20-year term (around $60 for men).

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(Source: Forbes)

The Underwriter's CornerInspection Reports

- To supplement the information on a life insurance application, the underwriter may order an inspection report on the applicant from an independent investigating firm or credit agency, which provides financial and moral (or lifestyle choices) information.

- This data is used only to help determine the insurability of the applicant. If the amount of insurance being applied for is average, the inspector will typically write a general description about the applicant's finances, health, character, occupation, hobbies, and other habits. When larger amounts of coverage are requested, the inspector will provide a more detailed report. This information is based on interviews with the applicant's associates at home (including neighbors and friends), at work, and elsewhere.

- Such "investigative consumer reports" may not be made unless the applicant is clearly and accurately told beforehand about the report in writing. This consumer report notification is usually part of the application.

Between October 1 and December 31, 2015, private debt collection companies hired by the Department of Education garnished more than $176 million in wages from defaulted student loan borrowers in order to pay back their debts.

These garnishments were all related to federal student loans which never need a cosigner, but private student loans are co-signed by a parent 90% of the time. What happens if you co-sign your child’s student loan and they are unable to pay? Private student loans do not have the same garnishment powers that federal student loans have, but the lender can still pursue you and even take you to court to try to collect the amount due because you co-signed the loan.

Even if your child has great career prospects post-college, there is one scenario in which your child, despite their best intentions, won’t be able to repay their loans: an untimely death. Sallie Mae, the largest private student lender, provides automatic private loan forgiveness if a student passes away, but not all private lenders offer such protection. Unlike federal student loans, private student loans are not automatically discharged upon the death of the student. If a parent co-signed the loan, they are on the hook for it, too. Imagine dealing with the death of your child and finding out that you are also responsible for repaying tens of thousands of dollars in outstanding private student loans. Fortunately, there is one simple, and relatively inexpensive, safeguard against this scenario: life insurance.

Many parents don’t consider purchasing life insurance for a child, but if you’re co-signing private student loans you should verify what happens in the event of the borrower’s death.

Who should I name as beneficiary?

If both parents die and a minor child is named as a contingent beneficiary, or if a single parent names a child as a beneficiary, matters can get complicated. Surrogate courts may get involved.

The simplest and most inexpensive way to avoid this situation is to have the policyholder's will create a testamentary trust after the holder's death. The trust is named as the beneficiary, providing instructions for a named trustee.

An individual also can create a revocable living trust, which essentially serves as a will but has the added benefit of avoiding probate, the sometimes-lengthy court-directed process to settle a will.

Then there's the bulletproof option. Parents can name an irrevocable life insurance trust as the owner and beneficiary of the policy. Not only does that protect the money from creditors, it also removes the proceeds from the estate for tax purposes.

Life insurance proceeds aren't subject to income taxes, but the amount is included in the deceased's estate, said a local estate planning attorney.

That isn't a problem for most people, now that the federal estate tax exemption is $5.45 million (double that for married couples).

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And even if an agent truly believes in the merits of permanent insurance, which can accumulate a cash value, it is far more expensive, often costing several thousand dollars a year.

Permanent life insurance can, however, be the right choice for people who will always have a need for life insurance. They might include the parents of a child with special needs or a wealthy family who will owe estate taxes.

How much to buy?

The rule of thumb tossed around most often is to buy coverage worth 10 times the policyholder's salary. But each family's needs will vary depending on what amount of income the family is seeking to replace and what other items family members may want, or need.

A financial planner in Florida whose practice focuses on younger families, said working parents should buy enough insurance to replace their income for five to 20 years, depending on how old their children are and whether a spouse or partner could support the children on one income.

One policy or more?

Families' needs will probably change over time, so some individuals may consider buying policies with different expiration dates: maybe a $1 million policy with a 20-year term that gets the children through college and another $500,000 policy with a 30-year term that gets you to retirement.

(Source: New York Times)

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INSURANCE 101 Famous Estate Planning Failures

(Source: Insurance News Net)

Why You Need Life Insurance

Many people believe that life insurance is a waste of money. That is one way to look at it; however, just as your business is an investment, life insurance can be considered an investment that protects your business.

Paying a little bit of money now will help protect your business in the event of your death. Think of it as surety that once you are gone, bills will be paid and the business can remain with your family—as opposed to them having to sell it to pay the bills.

While having life insurance is not always an SBA loan requirement, it is recommended that you have it and often is required by lenders, especially when there is concern over whether your business could survive without you. I recall obtaining life insurance myself as a prerequisite to obtaining a small business loan a few years back. Understandably, the bank wants to protect its financial interest in the event something should happen to you.

NAME: William Davidson

DIED: March 13, 2009

AGE: 86

CAUSE: Natural Causes

ESTATE BLUNDER: The IRS hit his estate with a $2.8 billion tax bill.

William was an industrialist who bought the floundering Detroit Pistons and grew it into a successful, and pampered, basketball team with a palace of a stadium. When he died he left an estate worth between $2.2 billion and $5.5 billion. Davidson said he would never sell the Pistons and expected it to remain in the family.

After he died the Internal Revenue Service submitted a $2.8 billion estate tax bill, which some say might set a record. The family needed liquidity in a hurry and sold Palace Sports and Entertainment, which included the Pistons and the stadium, supposedly for $325 million. It was a nice return for the $8 million Davidson paid in 1974, but the price was at least $100 million under value, according to some reports.

Protect the Future of Your Small Business with Life InsuranceOne thing every business owner needs is life insurance. It’s not something you normally think about when starting a business, but it should still be at the top of your list. Life insurance not only protects your business in the event of your death, but also your loved ones who are left with your business’s expenses.

Most small business owners have their life savings invested in their businesses. As such, the business is one of the only things left for their descendants.

Life insurance can help protect the business, as well as those you leave it to. In fact, some experts state that life insurance is the most important insurance coverage you can purchase as a small business owner. Before you shrug off this advice, take a look at a few reasons why you absolutely must have life insurance if you own a small business.

(Source: allBusiness)

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