|he need for life insurance seems clear enough when you're a young, working parent. And while your family is growing up, life insurance premiums can become such a fixed part of your budget that you might never think of dropping it. But as you reach geezer status (settle down, it's a term of respect and affection), you might wonder if it's time to drop the old safety net. Here are a few frequently asked questions on the topic.|
Now that I'm eligible for senior citizen discounts, do I
still need life insurance?
Your life insurance needs depend on all your life circumstances, not merely your age.
Life insurance is not for you but for those you leave behind. The number of dependents you
have, your marital status, and the size of your estate are three of the most important factors in
determining whether or not you should drop life insurance.
Several agents have tried to convince me to switch to what
they claim is a new and better life insurance policy. Is this like buying a new automobile;
am I getting some accessories I really won't need?|
Be cautious when insurance agents suggest you switch to a new policy. Agents may call
it "replacement," but often they're practicing what's called "churning," the unnecessary
switching of policies to generate commissions for the agent. In 1996, the Consumer
Federation of America estimated policy switching cost consumers more than $6 billion annually.
My wife and I are retired and our disabled son lives
with us. Should we be carrying life insurance to provide for him after we're gone?
As long as you have dependents, you may want to carry life insurance to provide for them
when you're gone. This may not be necessary, however, if you have a substantial estate and
believe its assets will be sufficient to provide for their care, upbringing, or education. Consumer
finance books and magazines often provide work sheets you can use to determine how much life
insurance you need. "Making the Most of Your Money" (ISBN 0-671-65952-9), by Jane Bryant
Quinn, has such a work sheet, and a wealth of other information about life insurance.
I've heard that term insurance is for young people just
starting out. I'm looking forward to retiring in the next few years, so does that mean I
should switch to whole life insurance?|
The sole purpose of term life insurance is to pay someone when you die. Cash-value life insurance or whole life insurance has two parts--a life insurance policy and a savings or investment account. You should consider it a long-term investment. If you
My employer always has provided life insurance as one of
my benefits. I plan to retire next year; do I need to purchase some additional coverage?
If you're covered by a group term life insurance policy at work, check with your employee benefits or human resource department before you retire to learn what happens to your coverage when you retire. In some instances, you may keep your group life insurance coverage. Or, you may have a conversion option, permitting you to replace your group coverage with any individual policy issued by the same insurance company after you retire. Still, a conversion policy may not always be the best policy available. If your life circumstances necessitate carrying life insurance after you retire, make certain you get appropriate coverage at the lowest possible premium. Shop and compare.
My husband and I started a small business after we both
retired. Should we purchase extra life insurance?|
If you and your spouse are the sole owners of the business, you or your company probably should purchase a policy on each of your lives to cover estate taxes and any debts for which you've signed personally. If you and your spouse have business partners who are co-owners, you probably should talk to your lawyer about establishing a buy/sell agreement, funded by life and disability insurance. If a business partner dies or becomes disabled, this agreement allows the remaining partner(s) to buy that person's share of the business.
I've built up a substantial estate that will go to
my children. Should I purchase life insurance to help pay estate taxes?
The federal unified credit against estate tax has the effect of exempting up to $600,000 from estate taxes. If you're single and your assets are less than $600,000, or if you and your spouse have combined assets of less than $1.2 million, you don't need life insurance to pay estate taxes. But, even then, there still could be significant estate taxes without proper property ownership and a will that coordinates passing on the $1.2 million tax-free to the next generation. And, if your estate is more and your investments are illiquid--for example, real estate or a business--a life insurance policy may help pay your estate taxes. Consult your tax adviser.
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