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Life Insurance
A Cheap Price to Pay for Peace of Mind

By Nancy Castleman


If the recent tragedies have you wondering if you should get life insurance, I'm here to tell you it's high time. Already have some, but now find yourself wondering whether it's enough, or if your insurer is still solvent? I've got some good news for you.

If you haven't priced life insurance lately (or at all), you're going to be surprised at how inexpensive it can be -- even after 9-11 -- from some of the safest insurers around and for terms that will meet your needs.

True, it won't solve all the practical and emotional problems that have to be faced, but at least you'll know that your loved ones will have enough to make ends meet.

First, decide if your family needs life insurance by taking this little short-answer test. (Don't worry, it's open-book.) Answer yes or no to these five questions:

1. Are your children financially dependent on you?
2. Are you or your mate a stay-at-home parent?
3. Without you, would your family need financial help?
4. Are elderly parents likely to need money from you?
5. Do you plan to put your kids through college?

If you answered yes to one or more of these questions, you and your mate probably need life insurance.

I'm amazed by the number of intelligent, thoughful people, including many I know and love, with no life insurance at all. Even now. Maybe on some level, they think that if they got a policy, something awful would happen to them, which of course, ain't necessarily so. But it's virtually guaranteed that without a policy, their family will suddenly be thrown into an awful financial bind.

It's bad enough that they'd be grieving. Please don't let your issues about death and dying get in the way of providing some financial protection for your loved ones.

Who Should Be Covered?
It used to be that only breadwinners were insured. Not so any more, because of how much it'd cost to replace the "services provided" by stay-at-home parents. While no amount of money could make up for the loss of a parent, the kids will need childcare, meals will still have to be cooked, and then there's all the shopping, cleaning, car pooling, bill paying, and errand running that will need to be done.

In other words, if you're a young parent or not-so-young parent -- whether breadwinner or stay-at-home -- Marc and I deeply believe that life insurance is a must. End of sermon.

How Much Insurance Is Enough?
Experts generally recommend enough to cover between five and eight times your annual salary. But like most rules of thumb, this might not be best for you. Your goal should be to pick an amount that will cover the expenses that your family's other income can't cover, not one that gives them so much money, that their life without you -- financially, at least -- will be dramatically better than the original.

You'll need to take a hard look at your short and long-term financial needs, your debts, your financial resources, and your comfort level, as well as your family's comfort level. There are online life insurance calculators that can help. And also speak with a few local brokers and agents.

What Kind Should You Get?
You can buy a term policy -- that is, insurance for a defined time period -- or a cash-value policy -- one which combines life insurance with investments (e.g., whole life, universal life, and variable life).

Like virtually every other consumer advocate and personal finance expert, Marc and I think that the best buy for most of us is a term insurance policy.

Important: Be sure to lock in for the full term!! Choose a policy for the full amount of time you'll need coverage -- for example, 'til your youngest kid is done with college. Once a term ends, the premium can ... and invariably will rise, often dramatically ... especially if your health has deteriorated. What's worse, you may not be allowed to renew the policy at all.

Take it from Marc and me. We know first-hand that life threatening illnesses like cancer, and even quite treatable medical conditions like high blood pressure, can quickly change your insurance options and cost.

"Gulp," you may be thinking, "I can't afford to commit to insuring five to eight times my salary for 20 years."

Not to worry, at least not about the cost of the premiums. For example, meet Max and Emmy. He's 40, she's 35, and the youngest of their three children is 2. Having both been high earners in the past, they followed our advice, pre-paid their mortgage, and own their house free and clear. She's staying home with the kids right now, although she'll go back to work once they're older.

For now, they're making ends meet on Max's relatively modest salary of $30,000 a year. They want coverage until the baby's done with college, some 20 years from now.

Five to eight times Max's $30,000 salary is $150,000 to $240,000. But say Emmy and Max want to play it safe, and decide they want $300,000 policies on each of them.

Assuming they're both in good health, they could get a 20-year, $300,000 term insurance policy on him for about $27 a month. For her, it'd be around $17 a month. I know Max and Emmy ... and YOU ... can come up with $44 a month. After all, how much do you spend every month on cable, meals out, the gym, videos, etc.?

Let's say Emmy and Max decide to play it extra-safe, and go for a $1 million policy on him. Their costs would be $91 a month. About $1 a day per child will buy them $1.3 million in peace of mind.

Find Out for Yourself
Take a look at the table below to get a sense of how much you'd have to pay a month for different amounts of life insurance. In compiling these figures, we focused on residents of one mid-sized city. Double-checking nationwide indicated that the prices in the table are fairly representative, as of this writing, assuming the insured person is in good health and doesn't smoke.

For a more accurate sense, check for price quotes using one or another of these services:

Quotesmith (www.quotesmith.com, 800-556-9393)
QuickQuote (www.quickquote.com, 800-867-2404)
Insweb (www.insweb.com, 916-853-3300)

You'll get ballpark quotes, as well as a sense of the financial stability of the insurers as determined by one or more major safety rating agencies. It won't take you long. I think you'll be as amazed as I was by the low rates.

Before Choosing a Policy
Find out the answers to these questions:

Are the premiums guaranteed, or could they actually be higher? Under what conditions?

Is there an exclusionary period, perhaps 2 years, during which the death benefit will not be paid (because of suicide, a pre-existing condition, or because the policy is issued with no medical exam)?

Should you supplement your policy at work? Many employers who offer term insurance as a perk also give employees the chance to buy supplemental term insurance at group rates. Compare these rates to the term life quotes you get on your own. Before you decide, be sure to find out how these supplemental group rates might change if you leave your job and want to retain the coverage.

Be Forewarned: There'll Probably Be a Test!
Especially if you're looking for a large policy, a medical exam may be required. High blood pressure, heart trouble, and signs of drug abuse will raise your cost. Similarly, if you smoke, drink, eat too much, lead a stressful life, have a history of health problems, or enjoy dangerous hobbies, the price will go up. As always, one of the best investments you can make is in your health.

Tip: Visit www2.accuquote.com/exam.cfm for advice on how to prepare for an insurance medical exam.

Do a Safety Check
If your insurer goes belly up, and you need to replace your policy, health problems you didn't have when you originally signed up could make the premiums a lot more expensive.

Fortunately, it's easy to keep tabs on the ratings of insurers, because several agencies grade their overall financial strength. Here are three free services:

Standard & Poor's (www.standardandpoors.com)
A.M. Best (www.ambest.com)
Moody's (www.moodys.com)

Look for a company that has a strong rating from at least these three services. Sounds easy, doesn't it? Unfortunately, it won't be that simple. Each rating agency uses its own criteria and scoring. Make sure you understand a rater's grading system before you rely on its score.

After you've bought a policy, check the insurance company's safety ratings from time to time. If your insurer's health has deteriorated, you may want to shop for a comparable policy from a company that's in better shape.

Answers to a Couple of Common Questions
Should you insure a young child? While no amount of money can replace a child, the rates are temptingly low. But unless your kid is a celebrity, don't bother. Make sure you have the right amount of coverage on both parents to replace the loss of their income and services.

Do you need mortgage protection insurance? This expensive policy is often offered by mortgage lenders to pay off your mortgage if anything happens to you. As the amount you owe on your home loan decreases, so does the amount of your coverage. The premium, however, remains constant, and guess who's the beneficiary? Your lender!

If you have a mortgage, you should certainly factor that in as you decide how much life insurance to buy. While the mortgage will need to be paid whether you're there to write the check or not, it doesn't need to be immediately paid off. When the time comes, have the insurance company send a big check to your family -- not your bank. Let those you love decide how and when to pay off the loan.

Important: The same is true of credit card life and disability insurance offered by the credit card issuers. You can do better with private policies.

Where to Go For More Info on Life Insurance

Get "What You Should Know About Buying Life Insurance," published by the American Council of Life Insurance and the U.S. Office of Consumer Affairs. It'll help you decide how much life insurance you need and how to choose a company or agent. For a free copy, call the Federal Consumer Information Center at 888-878-3256 or get it online at: www.pueblo.gsa.gov/press/nfcpubs/knowlife.txt .  Also you can visit the Web site www.iii.org, the other Web sites we've mentioned, or read Smarter Insurance Solutions by Janet Bamford (our favorite book on the subject).

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