Thursday, July 23, 2009

Examing ins and outs of life insurance coverage

Monday, July 20, 2009 By PATRICIA KITCHEN patricia.kitchen@newsday.com

Here's how Elliott Levine views his life insurance policy: "The greatest gift you can get is not having to collect on it. . . . I would be glad that I wasted the money."

Levine, 39, of Oceanside is referring to the premium payments for a 20-year term life insurance policy, the type that pays a death benefit to the beneficiary if you die within a fixed period of time, and that returns none of your premium money if you don't die.

Five years ago, when he and his wife were expecting their first child, Levine switched to the term policy from a universal life insurance policy. That's the type that combines a death benefit with a savings/investment component, but for higher premiums. Sounds straightforward, but some insurance and annuity contracts have become so complex that the state Insurance Department has scheduled public hearings to determine whether new oversight or regulation is needed. A hearing is scheduled for Sept. 9 at SUNY Old Westbury.

DO YOU NEED IT?
Yes, if you have loved ones who would suffer significant economic hardship if you died. That could include spouse, dependent children, older family members who count on you and your paycheck.

IF SO, HOW MUCH?
Each circumstance is different, said J. Robert Hunter, director of insurance for the Consumer Federation of America. As a starting point, figure on five times your annual income if you have two children, he said. However,
Suze Orman in her book "Suze Orman's 2009 Action Plan," said she recommends people plan on 10 to 20 times their salaries. Sites such as SmartMoney.com, BankRate.com and Kiplinger.com provide online calculators to help people zero in on the appropriate amount.

TERM
"For the vast majority of us, term insurance is all that's needed," wrote Orman.
Here's how Hunter put it: "If you need insurance, you need term. If you need a tax shelter, that's a different matter." If you opt for term, he suggested the type that can be renewed each year for an extended period of time. Elliot Levine plans to do just that - renew his policy, which had increased the amount of his death benefit about five times over that of his former policy - this for the same monthly premium of $50.


PERMANENT
Permanent comes in several varieties: universal, variable, variable-universal. Whole life insurance, in which premiums generally remain constant, is the most common, according to the American Council of Life Insurers, a trade association. Yes, consumers with tighter budgets might need to look for the cheaper term insurance, said Jack Dolan, council spokesman. But permanent insurance provides both a death benefit and a way to save for the future, "two very worthwhile endeavors," Dolan said.

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