The insurance landscape
is shifting. The days of relying on policies to cover small-ticket items like
parking lot fender dings or water damage to attic relics are over. Gone too, for
the most part, is the era when patients could expect full medical coverage through
insurance. Except for those in a group health insurance plan, claim filers often
receive jumps in premiums or notifications of dropped coverage.
If
insurance has changed into a tool you hesitate to use, why should you bother?
Three reasons: you, your family and everything you own. It's a means to protect
yourself against catastrophic damage to your finances. Most people will need all
of these five insurance policies at some time in their lives.
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Do
you need life insurance?
| Do
you need it? | | How
much coverage? | | Which
policy? | |
The
primary purpose of life insurance is to replace the income that is lost when someone
dies. No working person should consider it out of reach -- a healthy 40-year-old
female can get a half million dollars in term insurance coverage for less than
a dollar a day. At the same time, if no one is relying on you financially, you
might not need life insurance.
Your life insurance
requirement translates to how much income your family would need if you died.
It's determined by what the ongoing financial needs are or soon may be. The needs
are greater if you have to factor in taking care of aging parents or a disabled
child.
In single-income families, you should consider
how much in costs you'll need to offset if the nonsalaried spouse is
a caregiver, says David F. Woods, president of Life
& Health Foundation for Education, a nonprofit organization for
public education focusing on life, health, disability and long-term
care insurance. Even though the caregiver does not earn an income, in
the event of untimely death, his or her work on child or elder care,
housekeeping and cooking may need to be replaced by paid help.
A lot of variables must be considered
when determining the amount of life insurance to get, including your financial
assets, spouse's income plus any expected inheritance. Bankrate's
insurance calculator can help you determine the amount of life insurance you
need.
There are two
main choices when it comes to life insurance: term insurance (temporary) or whole
life (also called cash value or permanent). Talk to your agent or adviser about
which makes the most sense for you. Once people
hit their late 50s, they may drop term insurance because it gets more expensive,
but that doesn't mean they don't need it, says Woods. The cost of cash-value insurance
doesn't go up as you get older, though premiums are much higher from the start.
And although a payment lapse in term insurance means the end of your coverage,
with permanent insurance, a portion of your investment, called the cash surrender
value, is returned to you. That money can be used to keep coverage in force during
times of unemployment or financial difficulty. Conventional
wisdom says that as your dependents become self-sufficient and your mortgage gets
paid off, your need for life insurance decreases, but Woods has another take.
"Even though the reasons you need it might change, the amount you need might even
go up," he says. "What you buy at 35 might fit your needs then, but as you get
older your standard of living increases. And even though the mortgage is paid
and the kids are through college, inflation and standard of living changes mean
that you'll want to make sure you leave enough for your spouse." Find
out how to get the best
price.
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