Financial Literacy - Families and Finance
Life insurance needs vary with lifestyle

Life insurance proceeds are generally not taxable, unless you own the policy for your own life. In that event, it will be included in your estate, which can increase the value of your estate considerably. Add the insurance proceeds to retirement accounts and a home, and it will become easy to bump up against the 2011 estate tax threshold of $1 million.

A way around that issue is with cross ownership of insurance policies, whereby one partner owns the insurance policy for the other and vice versa.

"It gets it out of your estate," says Kapp.

Partners do have to think through the issue, and Kapp recommends drawing up an agreement that will detail what will happen with the policies if there is a split in the relationship.

"Talking through the implications with an attorney and drawing up an agreement so there is an equitable solution is probably a good thing to do," he says.

Also, he advises that domestic partners, "work with a financial planner who is familiar with the issues, particularly as it relates to the gay and lesbian community, and take a look at the structuring. Each individual's circumstances are different."

Single parents

As a general rule, single parents have more to worry about than their coupled equivalents when it comes to raising children, and that includes life insurance. It's probably not an overstatement to suggest that life insurance should be on the "must-have" list for one-parent households.

Term insurance is the cheapest way to get the most coverage for a specified amount of time. It might be particularly helpful for single parents just because it is inexpensive and can provide the most benefit.

There are sophisticated formulas for determining the amount of death benefit consumers need, but a few quick and easy ways can be used as well -- for instance, the DIME method.

D stands for debt.
I is for yearly income.
M is for mortgage.
E is for education expenses.

Russell Fox, a Certified Financial Planner with Apex Wealth Management Group in Oxnard, Calif., advises using a multiple factor when figuring income, such as 20 years. Then you determine approximate education costs and outstanding debts to come up with a number.

"It's very subjective -- you just add all of that up. You could get a rough idea of your need," he says.


Most people who have reached the end of their working lives probably don't need life insurance. Their mortgage may be paid off or close to it, and their children are self-sufficient.

That said, there are plenty of reasons why older people may want to have life insurance coverage. They may have a child or grandchild with special needs, they may have grandchildren as dependents, or they may wish to provide for their grandchildren's educations. If they have considerable assets, they may have estate tax considerations, or they may wish to leave a legacy to a charitable organization.

Life insurance companies rate their policies based on health and actuarial tables. Because of that, life insurance generally becomes more expensive as you get older.

Though it's impossible to see into the future, some people may know they want insurance coverage for their entire lives, so they can buy it when they are young and the insurance is still affordable. Term insurance is very affordable for young, healthy people, but it goes up in cost with age.

Permanent insurance, on the other hand, is more expensive than term insurance upfront. But the premium remains level throughout your life.

"It could be four to five times more expensive than term. However you're building an asset. There is cash in the policy and at some point there should be adequate premiums in the policy that you won't have to pay anymore," says Certified Financial Planner Adam Sherman, president of Firstrust Financial Resources in Philadelphia.

With the cash value, you have a pot of savings that you can borrow against or use to pay the insurance premiums -- partially or entirely.

For more about this type of insurance, read Bankrate's miniprimer on permanent life insurance.

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