Life Insurance
& Supplemental Plans

Many financial experts consider life insurance to be the cornerstone of sound financial planning. It is generally a cost-effective way to provide for your loved ones after you are gone. It can be an important tool in the following ways:

1. Income replacement

For most people, their key economic asset is their ability to earn a living. If you have dependents, then you need to consider what would happen to them if they no longer have your income to rely on. Proceeds from a life insurance policy can help supplement retirement income. This can be especially useful if the benefits of your surviving spouse or domestic partner will be reduced after your death.

2. Pay outstanding debts and long-term obligations

Consider life insurance so that your loved ones have the money to offset burial costs, credit card debts and medical expenses not covered by health insurance. In addition, life insurance can be used to pay off the mortgage, supplement \retirement savings and help pay college tuition.

3. Estate planning

The proceeds of a life insurance policy can be structured to pay estate taxes so that your heirs will not have to liquidate other assets.

4. Charitable contributions

If you have a favorite charity, you can designate some of the proceeds from your life insurance to go to this organization

To decide how much life insurance to buy, you need to first figure out what your goals are in purchasing this coverage. Ask yourself the following:

• Do I want to spare my loved ones funeral costs and outstanding debts?

• Am I concerned that my spouse or domestic partner will not be able to continue to pay off the mortgage if I die suddenly?

• Do I have dependents who count on my income?

• Am I concerned about college savings for my children or retirement savings for my spouse if I die suddenly?

While all situations are different, here are two scenarios to help you think through the questions you should pose to your insurance professional:

Dependents

If you have children, a spouse who does not work outside the home or aging parents who you financially support, you have dependents. Alternatively, you may simply have a spouse or domestic partner who would be unable to pay the mortgage without your financial contribution. In either case, your loved ones will no longer have your income to help them pay the bills and maintain their lifestyle after you are gone. You will have to purchase enough insurance to provide for their future, while considering how much of your budget should be devoted to life insurance.

Some insurance experts suggest that you purchase five to eight times your current income. While this may be a good way to begin estimating your family's needs, you will also need to figure how much your dependents will need to pay for some or all the following:

• Cost of owning a home (mortgage, maintenance, insurance, taxes and utilities)

• College savings

• Food, clothing, utilities

• Child care

• Nursing home or elder care

• Retirement savings

• Funeral expenses and estate taxes

Your family may also need extra money to make some changes after you die. They may want to relocate or your spouse may need to go back to school to be in a better position to help support the family.

No dependents

If you are young and plan to have a family in the future, you may also want to consider purchasing life insurance now so that you can lock in a good rate.

Just because you don't have dependents, does not mean you don't have responsibilities. For instance, you may be concerned with not being an economic burden to others if you die unexpectedly. You may also want to leave some money behind to close family, friends or a special charity as a remembrance. In this case, you should purchase enough coverage to pay funeral and burial expenses, outstanding debts and tax liabilities, so that the bulk of your estate goes to your family, friends or charities.

Your insurance needs will vary greatly according to your financial assets and liabilities, income potential and level of expenses.

While there a many different types of life insurance policies, they generally fall into two categories - term and permanent.

Term

Term Insurance is the simplest form of life insurance. It provides financial protection for a specific time, usually from one to 30 years. These policies are relatively inexpensive and are well suited for goals, such as insurance protection during the child-raising years or while paying off a mortgage. They provide a death benefit, but do not offer cash savings.

Purchasing term insurance is like renting a home. It is a short-term solution. Monthly costs are usually lower, but you will not be building equity. Just as many people rent (while saving to buy a home), individuals who need insurance protection now, but have limited resources, may purchase term coverage and then switch to permanent protection. Others may view term insurance as a cost-effective way to protect their family and still have money to put into other investments.

Permanent

Permanent insurance (such as universal life, variable universal life and whole life) provides long-term financial protection. These policies include both a death benefit and, in some cases, cash savings. Because of the savings element, premiums tend to be higher. This type of insurance is good for long-range financial goals.

Purchasing permanent insurance is like buying a home instead of renting. You are taking care of long-term housing needs with a long-term solution. Your monthly costs may be higher than if you rent, but your payments will build equity over time. If you purchase permanent insurance, your premiums will pay a death benefit and may also build cash value that can be accessed in the future.

A beneficiary is the person or financial institution, (a trust fund, for instance) you name in a life insurance policy to receive the proceeds. In addition to naming a specific beneficiary, you should name a second or "contingent" beneficiary, in case you outlive the first beneficiary.

If there is no living beneficiary, the proceeds will go to your estate. If there are probate proceedings this could possible delay your loved ones receiving the money. The proceeds may also be subject to estate taxes.

Picking a beneficiary, and keeping that choice up-to-date, are important parts of purchasing life insurance. The birth or adoption of a child, marriage or divorce can affect your initial choice of who will receive the death benefit when you die. Review your beneficiary designation as new situations arise to make sure your choice is still appropriate.

Pay special attention to the wording of your beneficiary designations to ensure that the right person receives the proceeds of your estate. If you write "wife/husband of the insured" without using a specific name, an ex-spouse could receive the proceeds. On the other hand, if you have named specific children, any later-born or adopted children will not receive the proceeds - - unless the beneficiary designation is changed.

You should review all of your insurance needs at least once a year. If you have a major life change, you should contact your insurance agent or company representative. The change in your life may have a significant impact on your insurance needs. Life changes may include:

• Marriage or divorce

• A child or grandchild who is born or adopted

• Significant changes in your health or that of your spouse/domestic partner

• Taking on the financial responsibility of an aging parent

• Purchasing a new home

• Refinancing your home

• Coming into an inheritance

• Four key reasons to buy long-term care insurance 1. Preserve your assets for your family instead of spending the money on long-term care. 2. The odds are one-in-three that a man over 65 will need long-term care; for a woman over 65, the odds are one in two. 3. New rules make it hard to qualify for Medicaid. 4. Premiums may be partially tax-deductible

• Typical policy features The best policies pay for care in a nursing home, assisted living facility or at home. Benefits are typically expressed in daily amounts, with a lifetime maximum. Some policies pay half as much per day for at-home care as for nursing home care. Others pay the same amount, or have a "pool of benefits" that can be tapped as needed.

• Elgibility triggers Make sure you know when benefits kick in. The policy should state the various conditions that must be met. 1. The inability to perform two or three specific "activities of daily living" without help. These include bathing, dressing, eating, toileting and "transferring" or being able to move from place to place or between bed and chair. 2. Cognitive impairment. Most policies cover stroke, Alzheimer�s and Parkinson's disease, but other forms of mental incapacity may be excluded. 3. Medical necessity, or certification by a doctor that long-term care is necessary. 4. Prior hospitalization. Some older policies require a hospital stay of at least three days before benefits can be paid. This requirement is very restrictive and should be avoided. 5. A benefit period that may range from two years to lifetime. You can keep premiums down by electing coverage for three to four years -- longer than the average nursing home stay -- instead of lifetime. 6. A waiting or "elimination" period. Premiums will be lower if you pay for an initial period of care yourself instead of electing first-day coverage. 7. Inflation protection is an important feature, especially if you are under 65 when you buy benefits that you may not use for 20 years or more. The best inflation provision compounds benefits at 5% a year. 8. Guaranteed renewable policies must be renewed by the insurance company, although premiums can go up if they are increased for an entire class of policyholders. 9. Waiver of premium, so that no further premiums are due once you start to receive benefits. 10. Third-party notification, so that a relative, friend or professional adviser will be notified if the policyholder forgets to pay a premium.

• Optional Features 1. Restoration of benefits. This feature ensures that maximum benefits are put back in place if you receive benefits for a time, then recover, and go for a specified period (typically six months) without benefits. 2. Nonforfeiture benefits return a portion of premiums or keep a lesser amount of insurance in force if you let the policy lapse. This provision, required by some states, adds to the cost of the policy.

There is a big difference between when an insurance company cancels a policy and when it chooses not to renew it. Insurance companies cannot cancel a policy that has been in force for more than 60 days except:

• If you fail to pay the premium.

• You have committed fraud or made serious misrepresentations on your application.

• Your driver's license has been revoked or suspended.

Non-renewal is a different matter. Either you or your insurance company can decide not to renew the policy when it expires. Depending on the state you live in, your insurance company must give you a certain number of days notice and explain the reason for non-renewal before it drops your policy. If you think the reason is unfair or want a further explanation, call the insurance company's consumer affairs division. If you don't get an explanation, call your state insurance department.