It is the elephant in the room. Everyone knows it is there, yet no one wants to talk about it. The elephant is death.
I recently lost my brother in law, Joseph, at the age of 36. It was unexpected, and of course devastating. What is tragic is watching my sister in law struggle with the bills and funeral costs. These come to the surface and demand attention. She has taken phone calls from people wanting money when she has had none to give.
The problem is that Joseph was under-insured. In my profession I have been working with those who are dying and their families for many years. What I have found is that many are unprepared for the roller coaster of emotions, the mounting pile of medical bills, funeral plans, extended family issues and finances. It is unfortunate that during this emotional time important decisions need to be made. Much of this is unavoidable. One thing that can ease some of these burdens is life insurance.
And the best time to prepare your family for when you’re gone is before you’re gone. Read this comprehensive post about preparing for death.
Policy Types
There are a many types of life insurance policies. The most common are Permanent, Whole, Universal, and Term Insurance. The first three are sold as a life insurance policy and a method of investment. Life insurance is not the best way to invest your money. There are other investments that yield a higher return. These policies also allow the insured to borrow or withdraw cash against the policy.[aweber-form]
Some individuals cannot qualify for term or find it too expensive. These other policies may be more budget friendly and still get the job done. There are advertisements on the television about policies that require no physical or medical questions. They are by reputable companies and can be considered an option. Be sure to read the fine print. There are limitations placed on this policy that may range from a few months to a few years. They may not be a bad purchase, just read all of the fine print. Be an informed consumer.
Term insurance allows you to buy the amount of insurance that you need, for only as long as your need it. The money saved by purchasing a term insurance policy can be used to pay off debts or to invest. Term insurance is the best option for those who are young and raising children. When the kids move out, ask your agent about adjusting the amount or if another type of insurance would better fit your needs.
Some term insurance companies are offering a return of premiums (ROP) to their customers. If you out live the term of your policy, they will refund you 100% of the premiums you have paid. Read the details and ask your agent any questions about insurance. It is a product you will want to work seamlessly for you when you need it to.
Policy Sources
Many employers and financial institutions offer free life insurance. Employers usually base the coverage on your yearly income. There may be an option to buy additional insurance coverage. Check to see how much coverage you have through work and include that amount when making your life insurance decisions. Remember that if you switch jobs, you need to purchase it through the new employer or with an agent. If you lose your job, you lose that insurance. Banks and credit unions may offer insurance for free, but it is not a large amount.
Another option is to self-insure. This is when you save money in an account that is to be used only when you pass away. The dollar amount must be enough to pay for funeral expenses, medical bills, and any other expenditures. Make sure that your final papers are in order so a family or friend will have access to the account and make sure it is spent on your funeral.
There are many sites on the internet that offer insurance calculators. You will be asked information about possible expenses and any special needs that your family may have. Plug in the requested numbers and amounts and a detailed report will follow. Many sites (and employers) offer other types of insurance to consider. These may include disability, long term care, critical illness and income protection. Again, examine the variety that is available and speak to an insurance specialist about what additional coverage your family may need.
How much coverage?
Many ask how much life insurance is needed. You need to have coverage that is 10 times your family’s annual income. The whole point of insurance is to replace yours or your spouse’s salary. If your homes income is $75,000 a year, your insurance coverage should be $750,000. Your chosen beneficiary can invest this money at 10% per year, which will provide them with an annual income of $75,000.
By replacing your income, your family can maintain the same lifestyle that you provided for them. Chose a beneficiary with care. It should be someone that you trust. The beneficiary should understand what you want done with the insurance money. Not only should you verbally discuss this, it needs to be written out in a will.
What could be more traumatic on the heels of losing a spouse than being forced to sell your home, find a job, and uproot the kids? Imagine how nice it would be to know that when you pass, your spouse will be able to be there for your children during this difficult time. Evaluate how long you will have your children at home and purchase a policy that will at least cover your family until the last child leaves home.
As your life changes, so will the amount of insurance coverage needed. When the children are moved out, the amount of insurance coverage can decrease. It is wise to reduce or eliminate any debt and increase your savings. A policy must cover medical bills, existing debt, and funeral expenses.
Where do you keep your policy? I recommend having a drawer, file cabinet, or box that holds all of your important documents. When you pass away, your family can quickly find your life insurance policy and all of the other needed documents. These documents should include:
• Will and estate plans that tell your family how you want your life insurance money spent
• Tax returns, your monthly budget, and bank account information
• Passwords, PINS, combinations, user names
• Other insurance policies
• Investments and retirement accounts
• Funeral and other after death instructions
Final thoughts. (So to speak.)
Seven months after Joseph’s death, his widow is still adjusting to her “new normal.” A GoFundMe page and a yard sale of donated items has helped ease some of the financial burden, but there is still a shortage of money and some bills still need to be paid.
You know you are going to die. We all are. No one should be left behind worrying about going back to work, keeping the lights on, and paying the mortgage. Do the right thing and purchase life insurance. There is no “thinking about it” or “I will get around to it”. Do it now. It is the most thoughtful gift you can give to your loved ones.
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I had had VA life insurance which I had borrowed on. A while back the VA took over care of my money saying I was financially incompetent after I had had a back injury and was receiving steroid injections in the spine which had made me quite manic and I was spending money like a drunken sailor. It was supposed to be temporary and lifted once I was no longer receiving the injections. Instead the VA held onto my money for almost 20 years only allowing me to get control of my money back two years ago. They had appointed a man who is a CPA to handle my funds. He was aware I had borrowed money against my life insurance and I had asked him to start using some of my money monthly to repay the loans, so I would not lose my life insurance coverage. I had been unable to get any information regarding my life insurance from the VA since if I called in to inquire they would tell me they could not discuss it with me I would have to speak to my payee representative. So when I was finally given control of my money again one of the first things I did was call the VA life insurance department, only to discover I have had no life insurance for the past six years. And the CPA had never told me that.
I am now 68 years old and with too many physical handicaps to qualify for most life insurance. I had considered buying one of those term policies spoken of in the article, except if you crap out in the first two years, your beneficiary would only receive the amount you have paid into the policy. Basically the only thing I need paid for when I die is the funeral costs, and I’m hoping to be cremated since you have to legally get rid of the remains, and I don’t want some extended family member to get stuck with the costs. I figured the premiums for the policy offered and that if I should die before the two years, and that would not cover even a basic cremation. So I didn’t buy it. I tried to qualify to buy more through the VA but that required several 200+ mile round trips to the nearest VA facility, trips I am no longer capable of driving since my back has gotten so bad. I had submitted all the medical information to the VA but they required me to drive to San Antonio for an evaluation regardless. I found out the doctor they wanted me to see was not even a specialist in the area I was claiming the additional disability (as that was what they told me I had to do in order to be able to get the VA insurance) and they told me he was not going to examine me buy merely ask me certain questions. And he/she cannot do that over the phone, you have to go in person.
So I am now 68, with no life insurance and apparently little probability of being able to get any before I die. I guess my best option is to buy a prepaid cremation, tell my friends about it and hope someone gets the body there when I die. I’m not too worried about any debts I have, which aren’t that many, since I won’t be leaving anyone behind who could be stuck paying those debts. Anything not yet paid off can be taken back by the companies if they want to, no one will care. I have full health insurance so there should not be any left over medical bills, and literally no one to stick with such bills if there are any. My only relatives are a couple brothers and a sister that I have not spoken to for years and doubt they would want to get involved with anything dealing with my death, and I sure don’t want them getting stuck with any funeral expenses and doubt they would either.
My only concern would be my dogs and my cat, and I am relatively certain that friends of mine will take them in and care for them. And I have told my landlords, who are old friends of mine, that when I die, if still living here, they can have whatever they want of mine and do whatever they want with the rest. I have carefully not accumulated much so that there will be no estate when I do die for anyone to fight over. Both of my ex-husbands have already passed away and there were never any children, so not really any reason to have any more insurance other than to meet the cost of cremation, which I’m told is about $1500 now. Am going to call the local funeral home (yes, small enough town there is only one of them here) and find out the cost of a prepaid cremation tomorrow, and start getting that taken care of. Just no point on anyone else getting stuck with that expense.
Another recommendation I have seen in financial publications is the purchase of some form of life insurance when co-signing for a college loan.
I like to share my experience in hopes of helping families avoid the pitfall that we faced. My son died unexpectedly at the age of 18 and a reasonably modest funeral and a very small headstone cost us well over $13,000. Luckily we had been working on paying off our credit cards, so we were able to split the bill among 5 different cards (plus the headstone was financed separately by the memorial company — note, they don’t place them until they are paid for so that was three years down the road). After that nightmare, we made sure we had a minimum of $10,000 on each of our girls and added coverage for any joint car loans and/or student loans we shared with them. This is a not a fun way to find out you should really insure your kids. The modest cost of 6 or 7 dollars a month for each policy is a BARGAIN. Try making essentially an extra car payment without warning. Blessings and thanks for sharing this crucial information.