Life Insurance 101

B.L.A.C. READER: I am a 37-year-old husband and father of three children. How much life insurance should I have for my wife and myself? Is it necessary to get insurance on my children?

BRIDGFORTH: Congratulations on being proactive and gathering information to prepare for your family's future in the event of your death or the death of a loved one. As a husband and father, it is your responsibility.

A husband, wife and each child should have his or her own policy. However, family plans are available that cover the husband, with other family members placed on the policy as riders, an amendment that can provide expanded coverage. Some companies offer policies for children that require only 20 years of payments. After that time period, without any additional payments made, the child is covered for the amount of the policy whenever he or she passes away.

Here are two common types of life insurance policies:

1. Term policies cover a specified period of time, generally from one to 30 years. If the policyholder dies during this period, the beneficiary gets the money without going through probate-the legal court system-and after this specified term, coverage ends. These policies should be reviewed annually to update coverage and beneficiaries. Some term policies include an option to renew without a physical exam. Term is the most reasonably priced life insurance. Premiums start out low, but as you renew they get higher due to increasing age and other factors.
2. Whole-life insurance is sometimes called “cash-value” insurance because it combines death benefits with a savings component. As long as the policy holder continues paying the scheduled monthly, quarterly or annual premiums, whole-life insurance continues throughout his or her lifetime, regardless of age or health. And, as premiums are paid, a portion of each payment is set aside to create a cash-value savings vehicle that earns interest. Though this is not the best way to save money, the cash-value amount becomes available to an individual who surrenders a whole-life policy prior to its maturity or the person’s death. that earns interest. Premiums on this type of policy never increase.

I recommend getting life insurance at the youngest age possible. You are more likely to be healthier, which means it will be less expensive.

Some employers carry life insurance on for employees under a group term policy. If this is what you have, you should be aware of the amount, term and the fact that you are only covered as long as you remain an employee. If you leave the company, you will no longer be insured. Even if you do have a group term policy, you should have a life insurance policy independent from what is offered by your employer. An additional whole life policy offers you extra protection.

Paying premiums on time is important. If you skip a payment, a policy will lapse after 30 days. Detroiter Edward Hodges, who sells life insurance, says sometimes clients debate him about whether they should make a payment in order to maintain their policy or spend that money at a casino. His typical, dry sense of humor retort is: “OK, just don’t die.” For more information or free quotes, without obligation, contact Hodges at 313-477-0409.

Whatever your needs, when you are selecting an insurance policy it is important to shop around for price quotes. Remember, a policy is only as good as the company that is writing it. You can obtain a rating of each company you are considering from a ratings service agency. The following organizations will perform this service:

A.M. Best
908-439-2200

Standard and Poor’s
877-481-8724

Moody’s Investor Service
800-811-6980

I recently heard of an individual whose family member had died eight days prior, but the burial hadn’t happened yet because loved ones were continuing to gather enough funds to pay for it. How unfair it seems to leave such an economic burden on top of the huge emotional toll suffered by those left to handle the arrangements of the deceased.

The minimum cost to bury an individual today is about $8,000. Consider getting a $25,000 policy, which should cover the total cost and leave something extra for your family. An ideal option is to have both term and whole-life coverage, for example, a $25,000 whole-life policy and a $75,000 term policy.

Keep in mind if you opt for a larger policy, for example, a $100,000 policy, you are doing much more than covering burial expenses. As Pastor Solomon Kinloch Jr. of Triumph Church recently said in a sermon, it is an opportunity to “reverse the curse of poverty and provide a launching pad for future generations.”

I find it astounding that some people deem life insurance an unnecessary expense. We do not know when, where or how it will happen, but for every human being, death is inevitable. The best thing to do is to talk over your options with a licensed insurance agent or broker. Life insurance is a great way to make critical provisions for your family’s long-term well being.

GLINDA BRIDGFORTH IS THE AUTHOR OF “GIRL, GET YOUR CREDIT STRAIGHT!” AND FOUNDER OF BRIDGFORTH FINANCIAL AND ASSOCIATES, LLC.

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