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Kids need life insurance too. Let us show you why…
We spend so much time talking about the reasons adults need life insurance (income protection, covering funeral costs and so on) that it’s easy to forget why it may be a good idea for you to insure your children as well.
When we think about it, we reason that our kids aren’t contributing to the household budget—in fact, anyone with kids knows that raising them takes a lot out of that budget! But getting a permanent life insurance policy for a child can offer financial advantages for them later in life (in addition to the death benefit).
So before you find yourself caught up in internet debates over how to get your baby to sleep or what kind of diapers to use (or if you’ve already been through that and are dreading the next round of parenting arguments), here are five things to know about buying life insurance for your child:
1. Life insurance policies “grow up” too. A great reason to invest in juvenile life insurance is to ensure that your children are covered from the get-go, and as they get older, may be able to take advantage of riders that allow them to expand their coverage at a guaranteed rate without any question about their respective health. People’s health changes, including children’s, and having a policy in place can ensure they’ll have the coverage they need, despite health changes.
2. It creates a sensible foundation: While there are tax-advantaged vehicles for saving for retirement and college, that’s not necessarily the case for other major expenses that young adults face such as automobile down payments, weddings and first home purchases. The cash value of a policy can be borrowed from—understanding, of course, that it reduces or eliminates the death benefit if not repaid—for these expenses.
3. Not sold on getting them their own policy? Add them to yours. Check to see whether easily affordable riders on your own life insurance policy are available to cover the kids.
4. Don’t buy the first policy that crosses your mailbox, either: The same marketing clearinghouses that make sure you get every single updates on your pregnancy week by week are also making your contact information available to firms that market life insurance. Be sure to compare prices, and it’s always helpful to talk to an insurance professional or advisor who can help you navigate through choices before committing to a policy.
5. The safety net is there. We all want to see our kids grow up happy, healthy and strong. But if the worst happens, as was the case for the Koonsman family, (you can watch their story here) then juvenile life insurance can help provide a buffer—covering funeral expenses, sure, but also allowing parents to take time off, care for their other children, and allow everyone to grieve as needed. And as the Koonsman’s story shows, they were also able to keep their daughter Hope’s memory alive by establishing a scholarship in her name.
Let’s talk numbers….
You can’t pinpoint the ideal amount of life insurance you should buy down to the penny. But you can make a sound estimate if you consider your current financial situation and imagine what your loved ones will need in the coming years.
In general, you should find your ideal life insurance policy amount by calculating your long-term financial obligations and then subtracting your assets. The remainder is the gap that life insurance will have to fill. But it can be difficult to know what to include in your calculations, so there are several widely circulated rules of thumb meant to help you decide the right coverage amount. Here are a few of them.
Rule of thumb No. 1: Multiply your income by 10.
“It’s not a bad rule, but based on our economy today and interest rates, it’s an outdated rule,” says Marvin Feldman, president and CEO of insurance industry group Life Happens.
The “10 times income” rule doesn’t take a detailed look at your family’s needs, nor does it take into account your savings or existing life insurance policies. And it doesn’t provide a coverage amount for stay-at-home parents.
Both parents should be insured, Feldman says. That’s because the value provided by the stay-at-home parent needs to be replaced if he or she dies. At a bare minimum, the remaining parent would have to pay someone to provide the services, such as childcare, that the stay-at-home parent provided for free.
Rule of thumb No. 2: Buy 10 times your income, plus $100,000 per child for college expenses
Education expenses are an important component of your life insurance calculation if you have kids. This formula adds another layer to the “10 times income” rule, but it still doesn’t take a deep look at all of your family’s needs, assets or any life insurance coverage already in place.
Rule of thumb No. 3: The DIME formula
This formula encourages you to take a more detailed look at your finances than the other two. DIME stands for debt, income, mortgage and education, four areas that you should consider when calculating your life insurance needs.
Debt and final expenses: Add up your debts, other than your mortgage, plus an estimate of your funeral expenses.
Income: Decide for how many years your family would need support, and multiply your annual income by that number. The multiplier might be the number of years before your youngest child graduates from high school. Use this calculator to compute your income replacement needs:
Mortgage: Calculate the amount you need to pay off your mortgage.
Education: Estimate the cost of sending your kids to college.
The formula is more comprehensive, but it doesn’t account for the life insurance coverage and savings you already have, and it doesn’t consider the unpaid contributions a stay-at-home parent makes.
How to find your best number
Follow this general philosophy to find your own target coverage amount: financial obligations minus liquid assets. Calculate obligations: Add your annual salary (times the number of years that you want to replace income) + your mortgage balance + your other debts + future needs such as college and funeral costs. If you’re a stay-at-home parent, include the cost to replace the services that you provide, such as child care.From that, subtract liquid assets such as: savings + existing college funds + current life insurance.
Tips to keep in mind
Keep these tips in mind as you calculate your coverage needs:
- Rather than planning life insurance in isolation, consider the purchase as part of an overall financial plan, says certified financial planner Andy Tilp, president of Trillium Valley Financial Planning near Portland, Oregon. That plan should take into account future expenses, such as college costs, and the future growth of your income or assets. “Once that information is known, then you can map the life insurance need on top of the plan,” he says.
- Don’t skimp. Feldman recommends buying a little more coverage than you think you’ll need instead of buying less. Remember, your income likely will rise over the years, and so will your expenses. While you can’t anticipate exactly how much either of these will increase, a cushion helps make sure your spouse and kids can maintain their lifestyle.
“Consider buying multiple, smaller life insurance policies, instead of one larger policy, to vary your coverage as your needs ebb and flow.”
- Talk the numbers through with your spouse, Feldman advises. How much money does your spouse think the family would need to carry on without you? Do your estimates make sense to him or her? For example, would your family need to replace your full income, or just a portion?
- Consider buying multiple, smaller life insurance policies, instead of one larger policy, to vary your coverage as your needs ebb and flow. “This can reduce total costs, while ensuring adequate coverage to the times needed,” Tilp says. For instance, you could buy a 30-year term policy to cover your spouse until your retirement and a 20-year term policy to cover your children until they graduate from college.
- Turner recommends parents of young children choose 30-year versus 20-year terms to give them plenty of time to build up assets. With a longer term, you’re less likely to get caught short and have to shop for coverage again when you’re older and rates are higher.
Article Credits: Nerd Wallet
Author Credits: Barbara Marquand
Don’t be fooled, it takes one missed step off the curb and you could be out of work for 6 months. Who is going to help pay your bills?
Quick quiz: What’s the most valuable financial asset you own as a young professional and a provider for your family?Here are some hints: It’s not your home. It’s not your 401(k). And it’s definitely not your car.
The answer? It’s your future income. The money you earn in the years to come will allow you to pay your bills, save for the future, and create a secure financial foundation for you and your family.
Really, all the plans you’re making both for today and the future rely on the assumption that you’ll continue earning money. Which is exactly why it’s so important to protect that income and make sure you receive it no matter what.
That’s where disability insurance comes in.
Disability insurance ensures that you’re able to continue paying your bills and putting food on the table even if your health prevents you from working for an extended period of time. By sending you a monthly check that replaces some or all of your income, it protects your biggest financial asset from those worst-case scenarios.
It’s something that just about every working parent should have, but it’s a complicated product that can be difficult to understand and get right.
Why You Need Disability Insurance
Disability insurance is often ignored both because the prospect of becoming disabled seems remote and because the premiums can be hard to swallow, especially for young families who are already struggling to pay for child care and all the other expenses that come with having young kids.
But extended disability is a lot more common than most people think.
According to WebMD, your odds of becoming disabled before you retire are about 1 in 3.
The leading causes of disability include:
- Back pain
- Heart disease
For the most part it’s chronic illness that causes disability, not the kind of major accident that typically comes to mind. And the odds of it happening before you’re financially independent are fairly high, though there are some situations in which your personal odds may be lower.
So the big question is this: If you’re one of the 33% of people who faces an extended disability, where would the money come from to pay your bills and put food on the table? How long would your savings be able to support you, and what would you do if you needed help past that point?
Most people would struggle to make it more than a few months, which is exactly why disability insurance is so valuable. By replacing your income for potentially years at a time, it ensures that you’ll be able to continue taking care of your family no matter what.
Short-term disability insurance vs. long-term disability insurance
There are two main types of disability insurance: short-term and long-term.
Both can be helpful, but they play very different roles in your financial plan. Here’s an overview of each.
Short-Term Disability Insurance
Short-term disability insurance only offers benefits for a relatively limited amount of time. Most short-term disability insurance policies cover you for 3-6 months, though they can provide coverage for up to two years.
There is typically a waiting period of up to 14 days before the insurance kicks in to prevent it from covering minor illness and injury. After that waiting period, it will typically start to pay 50%-100% of your regular income until you either return to work or your coverage period ends.
One of the most common uses of short-term disability insurance is during maternity leave. Many, though not all, short-term disability policies cover the latter parts of pregnancy and the period after childbirth, which can help replace your income while staying home with your newborn.
Most short-term disability insurance policies are offered as an employer benefit, and in some cases that coverage may even be free. Private coverage is also an option if you aren’t able to get coverage through work, though those policies can be expensive. For example, a healthy 38-year-old male might pay a $2,300 annual premium for a $5,000 monthly benefit and 12 months of coverage.
One alternative to short-term disability insurance is building an emergency fund. A 3-6 month emergency fund would provide the same protection as a 3-6 month short-term disability insurance policy, with the added benefit of not having a monthly premium.
Long-Term Disability Insurance
Long-term disability insurance is where you typically find the most value. Because while a short-term disability could be covered by a healthy emergency fund, an extended disability is much more likely to deplete your family’s savings and put you in a difficult position unless you have some way of replacing your lost income.
Long-term disability insurance picks up where your emergency fund or short-term disability insurance leaves off. There’s typically a 3-6 month waiting period during which you would have to replace your income by other means.
But once you’re past that waiting period, your long-term disability insurance would start replacing your monthly income and would continue to do so for years at a time, as long as you remain disabled.
This is a big potential benefit. A long-term disability policy that replaces $5,000 per month in income will potentially pay you $60,000 per year for as long as you’re disable. That would go a long way toward keeping your family on the right track.
Given that potential value, it’s usually more important for families to secure long-term disability insurance than short-term disability insurance. For that reason, the rest of this guide will focus primarily on long-term disability insurance.
There are a lot of benefits of getting personal accident insurance. Here are just a few.
As you reach retirement, you have more time to do the things that you’ve always wanted, such as taking up new hobbies or going on dream vacations. You may also become more vulnerable to accidents as you grow older — which could mean injuries that take longer to heal and huge medical bills for treatment and recovery.
Personal accident insurance provides essential coverage against accidental injuries. With it, you can get reimbursed for medical expenses resulting from accidents, hospitalization benefits that help pay for alternative treatments, and (should accidental death occur) a lump sum payout.
Benefits of Personal Accident Insurance
When it comes to personal accident insurance, every situation is unique. While it can provide you with the financial protection you need in the event of an accidental injury, you may be asking yourself whether it’s the right decision for you.
Consider some of the following benefits.
Additional Coverage. This includes much of what might not be covered by health insurance, such as rehabilitation, and is a great way to supplement existing coverage.
- No Medical Underwriting. If you’ve been refused life insurance in the past for whatever reason, personal accident insurance is a great option as it usually does not require any medical underwriting.
- Inexpensive. Policies can be incredibly inexpensive due to factors like where you live and how much coverage you want. Additionally, personal accident insurance is an appealing offer for when traditional coverage is too expensive.
- You’re Self-Employed. If you’re self-employed, you may not have sick leave; personal accident insurance could protect your finances during that time.
- Peace of Mind. Taking up scuba diving in your golden years? Want to hike the Appalachian Trail?
Personal accident insurance is ideal for those who intend to stay physically active and could need the extra coverage.
How Does Personal Accident Insurance Work?
In the event of an accident, personal accident insurance covers you if you become disabled; unable to work; or have a defined injury, such as loss of eyesight or hearing, and fractured bones.
Beneficiaries are paid either in one lump sum or on a monthly basis to supplement missed income.
There are other benefits in addition to those mentioned above, including the fact that premiums are tax deductible. Check the terms of each policy you consider to learn more.
What Is Not Covered?
When considering whether personal accident insurance is right for you, it’s also important to understand what is not covered.
This includes self-inflicted injuries, dental injuries, injuries that occur while under the influence or while committing a crime, and accidents that occur as a result of a prior illness.
Is Personal Accident Insurance Right for You?
As you consider whether personal accident insurance is right for you and your family, you’re probably wondering whether it makes sense if you already have policies such as life insurance, accidental death, or workers compensation.
Personal accident insurance may be the right choice for you if:
- Traditional coverage is too expensive
- Paying out-of-pocket for bills that result from an accident outside of the workplace is out of the question
Take the time to find the policy that fits your lifestyle.
Article Credits: Empire Blue
Critical illness can wipe a family out with unexpected expenses. Here’s how you can help save yours.
When facing a critical illness—such as cancer, heart attack, stroke or Alzheimer’s disease—it’s important to focus all your energy on getting better.
But that can be difficult to do when the bills start rolling in. Consider these costs of critical illness:
- The average cost of cancer drugs: $24,000 to $36,000 per year1
- The average cost of care up to 90 days after a stroke: $15,0002
- Average out-of-pocket costs for health care and long-term care services for people aged 65 and older with Alzheimer’s disease: $10,000 per year3
While your primary health insurance may cover many of your health-related expenses, there are also many out-of-pocket costs to consider, such as:
- Insurance shortfalls: deductibles, co-payments, benefit limitations
- Living expenses: house payments, utilities, groceries
- Special expenses: transportation, lodging, family care, special diets
- Loss of income: if you or your spouse are unable to work, or if you’re caring for another family member
If you’re unable to work, how would you pay for expenses related to a critical illness that may not be covered by your primary health insurance? Do you have sufficient emergency funds in place to cover all your living expenses? Or would you need to spend your life savings, take out loans, borrow money from your family and friends or sell your personal belongings?
A better solution
Critical illness insurance, such as those from a number of great carriers, works with your major medical insurance to help protect you and your family. It provides benefit payments directly to you, so you and your family can focus on your recovery, not your finances.
Article Credits: Bankers Life
Get the most of of your Medicare and do your homework!
Secret 1: All Medicare Supplement Plans Are Identical
This is a big one, and it’s crucial to understand: All the Medicare Supplement insurance plans (and there are ten of them… Plan A, Plan B, Plan C, etc.), are standardized by the U.S. government.
This means the coverage insurance companies provide for each plan must be identical—all Plan A coverage is the same from every provider, all Plan B coverage is the same from every provider, and so on—right across the board.
So, an insurance provider cannot add additional benefits to their Plan A, or decide not to include certain benefits in their Plan C.
Why is this so important to know? Because…
Secret 2: Higher Premiums Don’t Mean More, or Expanded, Coverage
If your broker tells you a certain company is more expensive because it has extra coverage other providers don’t have for that plan—run. They’re lying. (Probably to pad their commissions… but that’s just our opinion.) As we said above, all providers must adhere to the standard for each plan.
Since the plans are all the same, the higher premium from one provider doesn’t mean you are getting more coverage than you would from a provider charging a lower premium.
And believe me, some insurance providers like to charge as much as they possibly can for these plans. We found differences in insurance company premiums for the exact same coverage so dramatic we had to double check to make sure our data was accurate. (It was.)
We found differences as high as $4,257 more per year, $5,232 more per year, up to as much as $8,072 more per year than the least expensive premium for that plan. And when you remember that the coverage for these plans is identical, we think you’ll agree charging $8,000 more per year for the same coverage is just outrageous.
Now, understand, these are not “cherry-picked” results meant to exaggerate the problem. No. This is the norm. From our Medigap database, just by taking random samples, we found over 3,500 examples of this type of gross overcharging.
But—even worse—guess what else you don’t get for the extra money providers are trying to charge you? (This one really made us angry…)
Secret 3: Higher Premiums Don’t Guarantee a Stronger Provider
Now, you may be wondering if the higher premiums are coming from providers who are stronger, and more financially stable. And that’s why they’re charging more.
Well, we can tell you that’s not the case. In many instances we find the exact opposite is true… The highest premiums are coming from companies with very low Weiss Safety Ratings.
For example, a company charging the highest premium of $9,125 per year for Plan A coverage, has a Weiss Safety Rating of D+, one of the lowest we give. It means, in our opinion, the company demonstrates significant weaknesses which could negatively impact policyholders—for example, not being able to pay claims.
On the other hand, one of the lowest cost providers is rated an A- by us… Meaning they are a strong, financially stable provider. And their annual premium for that same plan? $1,076.40.
Incredible… Not only would you save just over $8,000, but you’d be insured by a much more financially stable company.
And, just as we said before, this is not an isolated incident. We see it time and time again across all plans… Companies who are very low rated, charging over-inflated premiums to unsuspecting seniors.
So now that you know these secrets—and know what to watch out for when choosing a Medicare supplement insurance provider—you should be able to use it to save thousands on your annual premiums.
Article Credits: Weiss Ratings