David Lerner Associates: Reasons Why Women Require Life Insurance
Today, women have more financial responsibilities than ever before. How will your family members or loved ones manage financially if you die? Whether you are single, married, employed, or a stay-at-home mom, you most likely need life insurance. At the very minimum, life insurance can aid in paying for the costs of funeral and burial services, estate administration, outstanding financial obligations, estate taxes, and the uninsured expenses of a final illness.
Who needs life insurance?
Increasingly, families rely on the earnings of two working parents. If you're a working mother, your income can have a considerable effect on the quality of your family's lifestyle. Your income helps cover the cost of ordinary living expenses like food, clothing, and utilities, and it provides savings for your children's college education and for your retirement. Life insurance safeguards your family by providing proceeds that can be utilized to replace your lost income if you die prematurely.
Frequently, women, like men, think that it's not necessary to purchase life insurance because they have no dependents. What's often overlooked is that life insurance can provide necessary funds to pay off car loans, education loans, debts, a mortgage, taxes, and funeral costs that might otherwise be the responsibility of family members. Also, the cash value of permanent life insurance may be used to supplement retirement income.
Whether you're divorced, widowed, or simply a single mom, you're most likely primarily responsible for your child's support. If you die prematurely, life insurance can supply ongoing income to cover child-care costs, medical expenses, debts, and future college costs.
Maintaining a household is a full-time job, and you have many important roles and duties. The cost of the services carried out by a stay-at-home mom could be rather considerable if someone needed to be hired to do them. If you die, your surviving spouse may have to purchase services like child care, transportation for your children, and housekeeping. Taking over these added responsibilities could cause your spouse to shorten work hours, resulting in a reduction in income. Proceeds from your life insurance can help your spouse pay for services that keep the household running and enable your spouse to continue working.
Many women find themselves providing care for both children and elderly family members. Taking care of an aging parent or family member can include paying for the costs of adult day care, uninsured medical expenses, and extra transportation. Adding these expenses to the costs of maintaining a household, child care, and college tuition can be economically overpowering. Regrettably, these added financial responsibilities often continue after your death. Life insurance provides a source of funds that can be used to help pay for these expenses.
You may be one of the increasing number of women business owners. If you die while owning your business, life insurance can be used to provide cash for company expenses such as payroll or operating costs while your estate is being settled. Additionally, life insurance can be a useful tool for business owners structuring buy-sell arrangements or providing benefits to key employees.
Life insurance types and options
Life insurance comes in many different sizes and shapes, and determining the policy that meets your needs may depend upon a number of factors. Understanding the basic kinds of life insurance can help you discover the policy that's appropriate for you.
Term life insurance
Term life insurance provides a simple death benefit for a specified period of time. If you pass away in the course of the coverage period, the beneficiary you name in the policy receives the death benefit. If you live past the term period, your coverage ends, and you get nothing back. The cost, or premium, for the coverage can be fixed for the length of the policy term (usually 1 to 30 years), or it can be "annually renewable" meaning that the premium can increase each year as you get older. However, the premium for term insurance usually costs less than the premium for permanent insurance when all factors are the same, including the death benefit.
Whole life insurance
Whole life is permanent or cash value insurance that provides insurance coverage for your entire life. With most whole life policies, part of your premium is added to the cash value account, which earns interest. Some whole life policies also pay a dividend, which represents a portion of the company's profits made during the prior year.
The cash value grows tax deferred and can either be used as collateral to borrow from the insurance company or be directly accessed through a partial or complete surrender of the policy. It is essential to note, however, that a policy loan or partial surrender will decrease the policy's death benefit, there could be income tax implications, and a complete surrender will terminate coverage entirely.
Note: Guarantees are subject to the claims-paying ability and financial strength of the issuing insurance company.
Universal life insurance
Universal life is another type of permanent life insurance with a death benefit and a cash value account. A universal life insurance policy will generally provide very broad premium guidelines (i.e., minimum and maximum premium payments), but within these guidelines you can choose just how much and when you pay premiums. You are also free to change the policy's death benefit directly (again, within the limits set out by the policy) as your financial circumstances change. But if you want to raise the amount of coverage, you'll need to go through the insurability process again, probably including a new medical exam, and your premiums will increase.
Variable life insurance
Variable life insurance is a type of cash value coverage that allows you to choose how your cash value account is invested. A variable life policy generally contains several investment options, or subaccounts, that are professionally managed to pursue a stated investment goal. Choices can range from a fixed interest subaccount to an international growth subaccount. Variable life insurance policies require a fixed annual premium for the life of the policy and may provide a minimum guaranteed death benefit.
If the cash value exceeds a certain amount, the death benefit will increase.
Variable universal life insurance
Variable universal life combines all of the options and flexibility of universal life with the investment choices of a variable policy. You determine how often and how much your premium payments are to be within policy guidelines. With most variable universal life policies, you can direct how your premium payments are invested among policy subaccounts. But you get no guaranteed minimum cash value or death benefit, and the investment return and principal value of the investment options will vary.
Joint and survivor life insurance
You and your spouse may choose to buy a single policy of permanent insurance that covers both of your lives. With first-to-die, the death benefit is paid at the death of the spouse who dies first. With second-to-die, no death benefit is paid until both spouses are deceased. Second-to-die policies are commonly used in estate planning to pay estate taxes and other expenses due at the death of the second spouse. Aside from the fact that two people are insured by one policy, the policy characteristics remain the same.
Life insurance protection for women is equally as important as it is for men. However, women's life insurance coverage is often insufficient. It may be time to consult an insurance professional who can help you assess your life insurance needs, and offer information about the various types of policies available.
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.
David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
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Founded in 1976, David Lerner Associates is a privately-held broker/dealer with headquarters in Syosset, New York and branch offices in Westport, CT; Boca Raton, FL; Teaneck and Princeton, NJ; and White Plains, NY. For more information contact David Lerner Associates Call 1-800-367-3000 Visit our website: http://www.davidlerner.com