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It's an unsettling topic to talk about, but for couples, regardless of age or present health, this is one conversation that should not be avoided.
The death of a spouse, whether expected or a complete shock, is one of the most emotionally jarring events that can occur. Combine that distress with the financial concerns that often go along with the loss of a household's operations manager and you're looking at an overwhelming scenario. Adequate life insurance - either temporary (term) or a cash value policy - can provide the financial protection needed by families in the aftermath of such a loss.
Let's take a look at how these policies work.
With term or temporary life insurance, a premium is paid annually to cover the risk of death of a family's primary income earner during that year. Term insurance has no value and the only way to collect on it is if death occurs. In that event, the beneficiary collects the death benefit amount of the policy. In the past, with each passing year as the risk of death increased, so did the term insurance premium. Currently, however, many insurance companies offer level premiums for a predetermined number of years, but be warned - some policies don't guarantee those levels, and you could experience substantial premium increases down the road.
Many term insurance policyholders eventually see the advantages of converting their policy into a cash value contract. A cash value insurance policy provides the same death benefit protection as term insurance, with the bonus of tax-deferred cash accumulation. It also typically provides level premiums for the duration of the policy. Substantially higher in cash outlay than a term policy, cash value insurance can be more cost-efficient in the long run since the cash value accrual continues to grow tax-deferred as long as the policy is active. It can also provide significant financial security for a surviving spouse and family later in life.
Think about those household chores or the amount of income replacement desired to calculate the amount. When insuring the life of the primary caregiver of your children, you may need to consider the cost of hiring a nanny or housekeeper. If you don't hire someone for these services, maybe you'll cut back your time at work, and consequently make less.
Whether you go with term or a cash value policy, make sure you get enough coverage to ensure that any debts you have incurred will be paid off and your spouse and any dependent children can remain fiscally secure. It's also wise to purchase term insurance while at a fairly young age to avoid higher premiums and the chance that pre-existing medical problems drive up the cost.
And some final advice: do business with a reputable, independent insurance broker who can select from many well-rated insurance companies. The last thing you want to face in the tragic event of a lost spouse is the loss of benefits when you need them most.
Printable Version
John P. Napolitano
U.S. Wealth Management
uswealthcompanies.com
Phone: (781) 849-9200
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Investment advisory services offered residents of CA, CT, FL, IL, IN, KY, LA, ME, MA, NV, NH, NJ, NY, NC, PA, RI, SC, RN, TX and VT through advisory representatives of U.S. Financial Advisors, LLC (USFA), an SEC-registered investment advisor. Securities offered to residents of AL, AR, AZ, CA, CT, DC, FL, GA, HI, IA, IL, IN, KY, LA, MA, MD, ME, MI, MN, MO, NC, ND, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, TN, TX, VA, VT and WA through registered representatives of Lincoln Financial Securities, a registered broker-dealer and member FINRA/SIPC.
USFA, and U.S. Insurance Brokers, LLC are wholly-owned subsidiaries of U.S. Wealth Management, LLC. US Wealth Management LLC and Lincoln Financial Securities are not affiliated.
In NY, insurance may be offered through LFS Marketing & Insurance Agency Corporation.
In CA, insurance may be offered through LFS Marketing & Insurance Sales Corporation.
Some life insurance and annuity policies involve exclusions or limitations. For costs and complete details of coverage, contact your agent.
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