Ideas, tips and news about life insurance and the uses of life insurance

I was inspired by a segment of 60 Minutes I watched this past Sunday.  The story was about the people in Wilmington, Ohio, who are in the grip of a brutal series of layoffs at DHL, the shipping company.  Before the layoffs, one of three households in Wilmington had a family member working at DHL.  As expected, the layoffs have left this town decimated.

I was particularly touched by the strong sense of community these folks displayed, reaching out to help the less fortunate until they no longer had the resources to help.  When some helpers stumbled, others reached out to those in the most dire need of help.  Once again, my cynicism of the increasing materialism of Christmas was allayed by a story of goodwill and hope.

One of the stories revolved around a mother who was laid off after her husband had passed away, leaving her with a young child to support on her own.  What made her plight even more difficult was the fact that her deceased husband hadn’t owned a life insurance policy, leaving the family with meager resources.  Working several part time jobs, she was barely able to keep her family afloat.

Based on her experience, life insurance was so important to her that she did everything she could to hold onto the policy she purchased after her husband passed away.  She even dropped her health insurance so she could continue making her life insurance payments.  Making sure her daughter wouldn’t have to suffer financially if she was no longer around to support her, she made the decision that her health would have to suffer rather than not providing for her daughter in the event of her death.  While I wouldn’t recommend her to drop her health insurance, I can’t argue her act of selfless giving.

If you are like most Americans, your net worth has probably taken a big hit in the last eighteen months. With some stock portfolios down 50% and home prices falling faster than the Federal Government can produce new schemes to bail us out, it doesn’t take a math whiz to see that your nest egg isn’t what it once was.

Why am I rehashing this bad news in a blog about life insurance? It’s simple – many folks, when evaluating how much life insurance is needed to adequately protect the family in the event of the breadwinner’s death, consider that liquidating some of the accumulated assets would provide some funds for the family. These assets, along with some life insurance, would be enough for the family to live on for some time.

Maybe, in light of these shrinking assets, one should reconsider how much life insurance would be needed to keep the family comfortable in the event of the breadwinner’s death. I have spoken to many clients recently who have taken a look at their assets and realized they had better add more life insurance to their financial plans.

When this financial mess improves and your stock portfolio and real estate do so too, you can reevaluate whether to reduce the amount of your life insurance or to keep it in place to protect your assets, so the family wouldn’t have to liquidate them to survive.

As children, we have all heard the story of the race between the tortoise and the hare. However, there’s another race these two had that hasn’t been bound into a children’s story. Yes, there is a race, but the finish line in this story is quite different – it’s retirement.

As in the original story, the hare is faster and flashier than the tortoise. He wants to get to the finish line faster, so he invests his retirement money in the stock market with a portfolio heavy with stocks and stock mutual funds. He is young, so he doesn’t mind the risk.

The tortoise plods along, as in the original story and he makes a slow but steady path to the finish line. He is not looking to get to the finish line in a hurry – he just wants to make sure that he gets there. He is not concerned with the “sex appeal” of his investments – he looks for safe and secure places to grow his retirement savings. Amongst his various investments, he also invests in a whole life policy with a mutual insurance company.

In 1998, the hare, flush with paper profits from his investments (mostly high-tech companies) takes some time off and buys new cars and houses and jewelry (all on credit, as his profits are still only on paper). He can get use to this lifestyle and is contemplating retirement. The tortoise purchases a new pair of running shoes at the discount shoe warehouse – he pays cash.

Back in the race again in 2000 (minus the houses and cars, but not the huge debt), the hare starts to catch up with the tortoise again and is well in the lead in early 2008, rapidly approaching the finish line.

If you have read any newspaper recently, you know what has happened to the hare, so I don’t have to get into the gory details. The tortoise, I am happy to report, has borrowed some money from his whole life insurance policy and last we heard, was lying on a hammock, sipping on an umbrella drink in an undisclosed tropical island.

You know the moral of the story – it’s the same as the original.

According to the Life and Health Insurance Foundation for Education (LIFE), life insurance should be considered at every stage of life – single, young family, established family and pre-retiree/retiree. Here is what they recommend for each stage of life:

• Single people – the rule of thumb here is, if there are those who depend on you financially, such as aging parents you might help support, life insurance would certainly be appropriate protection for that financial assistance in the event of your death. Another good reason for life insurance would be if you had substantial debt you didn’t want to burden your family members with in the event of your death.
• Young families – if you, as the breadwinner, were to die, would your assets be enough for your family to maintain the style of living they have become accustomed to? If the answer is no, life insurance proceeds should be enough to allow your family to continue the lifestyle you have provided them with. It can also help with longer term needs, such as college education for the children and retirement funds for the surviving spouse.
• Established families – my clients often tell me they won’t need life insurance after the children are grown and out of the house and assets have grown to the point where they can be self-insured. While many find out that accumulating enough assets to be self-insured is a much larger task than they had expected, even with an accumulation large enough, they find the needs for life insurance shift from the purpose of income protection to that of asset protection. Most realize that it would be difficult for their heirs to liquidate the assets comfortably and, therefore choose to keep life insurance for that purpose.
• Pre-retirees/retirees – at this stage, there are many reasons to have life insurance. If you are fortunate enough to have accumulated a large estate, life insurance can be used as a vehicle to ensure a smooth transition of assets to the next generation, without burdening them with estate taxes. If you don’t have a need for this type of protection, perhaps you can use life insurance to pay off your mortgage or bills or to cover final expenses.

At each stage, you should work with a financial professional who can help you select the right product to ensure the proper protection for your family.

While driving to work this morning, I was listening to an interview with a debt relief specialist on the radio. The specialist was taking calls from the listening audience and, naturally, most of the callers had horror stories about losing their homes, mostly due to the current mortgage crisis.

Many of the callers had purchased homes with no down payments and sub-prime mortgages and many had recent rate adjustments that put their payments out of reach. The callers that got my attention were several who were losing their homes due to the death of a working spouse. With one income in the family, it was now impossible to keep up with mortgage payments. When purchasing the homes, these couples calculated that both incomes would be needed in order to continue making the mortgage payments.

While saving people from the ticking time-bomb of sub-prime mortgages is the subject of many blogs, the solution to avoiding losing a home due to the death of a spouse can be stated in one sentence – if you purchase life insurance to at least pay off the mortgage in the case of an income-earners death, you can ensure that your family won’t lose their house.

With the cost of term life insurance at its lowest in history, it’s inexpensive enough to protect your family from compounding the loss of your life with the loss of their home. If you can’t afford the life insurance on top of your mortgage payment, your mortgage payments are too high.

Protecting your loved ones from losing their home is as simple as purchasing a term life insurance policy. If you don’t have life insurance, the Internet has made the process simple. Visit www.ifeinsure.com to learn about life insurance and purchase a policy today.

During an economic downturn, many families look for ways to reduce or cut expenses. Perhaps your daily latte is the first victim of your budget cutting. Maybe you’ll start carpooling more and renting videos instead of going out to the local movie theater. Or perhaps, according to a recent article in the Pittsburgh Post Gazette you might be like 27 percent of families that would or have canceled their life insurance policies.

While most would survive without the daily lattes and watching movies at home doesn’t have quite the excitement of seeing the latest blockbuster on the big screen, canceling a life insurance policy could prove to be a recipe for disaster, according to the LIFE Foundation. “Without life insurance to replace the income a family depends on, they are going to be worse off than before,” said Marvin Feldman, chief executive officer of the Life Foundation in Arlington, Va., a nonprofit insurance education organization.

Before you cancel your life insurance policy, you have to ask yourself the difficult question, if times are difficult now, what would it be like for my family if I were to pass away and leave them without the financial protection of a life insurance policy?

Rather than eliminating life insurance from your budget, perhaps you can look at ways to reduce the premiums you pay. Term life insurance premiums are at an all-time low. When was the last time you researched rates? Maybe you can reduce premiums by purchasing a new policy and replacing your old, more-expensive policy. A review of your current needs might also reveal that you are over-insured and should purchase a policy with a lower benefit or shorter term period.

Include life insurance in your revised budget and you will be keeping a very important safety net in place for your family. And if you save money by finding a lower-cost policy, celebrate and have that latte.