That's Life

By Frank Wagner

October 19, 2007 5 min read

THAT'S LIFE

Insurance questions seem to puzzle the public

Frank Wagner

Copley News Service

What would you rather be doing right now, contemplating life insurance or standing in line at the DMV? If it's the later, you're not alone.

A recent survey by the Life and Health Insurance Foundation for Education (LIFE), an industry association, found that Americans would rather not think about life insurance.

Of those surveyed, 47 percent would rather go to the motor vehicle department and renew their drivers license; 20 percent would rather go the dentist for a root canal; 15 percent said they'd rather baby-sit sextuplets; 11 percent would rather be stuck on a New York City subway without air conditioning.

LIFE's survey seems to be in keeping with figures from LIMRA, another trade group, that indicate sales of individual life insurance "have been on a long decline" - for the past 20 years.

Yet despite Americans' distaste for the product, the need remains.

If others depend on your contributions, then you need life insurance according to Howard S. Drescher, a spokesman for LIMRA. But he concedes that the public is unenthusiastic.

"Insurance is an issue that consumers are greatly puzzled by," said Drescher. "They think 'I don't have the knowledge or the confidence.' But there are two basic questions people have: How much do I need and what type do I need?"

A rule of thumb used by agents in the past has been that you need to be insured for six to 10 times your annual income. Some underwriters have used formulas that had amounts that decreased as the insured aged, starting with 25 times annual income for someone aged 25, which would fall to 10 times annual income at age 55.

"I would warn consumers away from rules of thumb," cautioned Drescher, and instead rely on the counsel of an insurance underwriter or financial adviser. The answer for any individual will rest on who all is dependent on the insured, what their needs would be (standard of living, college, health care, etc.), and for how long.

The Massachusetts Department of Insurance says, "Single adults may not need much life insurance, unless they are single parents or support someone such as an elderly parent. Working couples without children or dependent parents may not need much life insurance, if the surviving spouse is able to make a good income and there are no major debts to pay off. Families (including single parent households) usually need life insurance because young children depend on their income. People with grown children are less likely to need life insurance. (If you are over 65 and your children are on their own, you might not need as much life insurance.)"

Drescher acknowledges that not everybody needs life insurance. "If you don't have any person to whom you need to personally look after, you could leave it at that and say 'No.'

"Take a single 25-year-old. They might not want it." He cautions though, that the earlier one starts, the cheaper the product is. "The easiest time to buy permanent insurance is when you're younger," he said. "That's when it's lower."

According to the Web site, www.insure.com, there is are five steps needed to assess how much insurance is required:

1. Determine short-term needs (funeral, emergency reserve, immediate medical, court costs, taxes).

2. Add up long-term obligations (including mortgage and college tuition).

3. Calculate family maintenance expenses (food, clothing, entertainment, child care, utilities, etc.)

4. Figure resources (savings, stocks, death benefits, Social Security, etc.)

5. Subtract your resources from your obligations.

A paycheck isn't the only indicator of contributions, said Drescher, who cited the contributions of a nonworking spouse. "Analyze all that a spouse does, and the financial contribution is major," he said.

The traditional types of insurance - term and whole life - have been joined by an array of hybrids devised by marketers. Term - no-frills insurance - remains the least expensive, and decreased sales have brought "historic lows," according to Drescher. "It's very clear that on the term side, that rates have become extremely competitive."

SIDE BAR

Online insurance calculators

Copley News Service

Want a starting point to determine how much you need? These are among the Web sites have calculators that can get you started:

- www.forbes.com/tools/calculator/life(underscore)insurance.jhtml

- www.finaid.org/calculators/lifeinsuranceneeds.phtml

- www.bygpub.com/finance/LifeInsCalc.htm

- www.budgetlife.com/needscalc.htm

- www.moneycentral.msn.com/investor/calcs/n(underscore)life/main.asp

? Copley News Service

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