The significant other of an acquaintance passed away and while I sent my condolences I couldn’t help but wonder how she would move through financially this year. I kept thinking did he have life insurance? Were they a two income household? Did she depend on him to help her with paying the bills? Of course these things run trough MY mind right? I am praying that in this economy that she will be OK.
I wondered what kind of life insurance could she possibly have? Term? Whole? Universal? How about the kind where she would get some of her money back after a certain time? What policy gives us the maximum benefit with minimum monthly installment? Can life insurance be used for retirement as the policy builds cash value?
Bankrate gives us the rundown here:
Term insurance — The simplest form of insurance. You purchase coverage for a specific price for a specified period. If you die during that time, your beneficiary receives the value of the policy. There is no investment component.
Whole life — Similar to term, but you purchase the policy to cover your “whole life” not just a set period. Premiums remain level throughout the life of the policy, and the company invests at least a portion of your premiums. Some firms share investment proceeds with policyholders in the form of a dividend. Many companies will offer “a relatively low guaranteed rate of return,” but in reality pay at a rate in excess of the guarantee.
Universal life — You decide how much you want to put in over and above a minimum premium. The company chooses the investment vehicle, which is generally restricted to bonds and mortgages. The investment and the returns go into a cash-value account, which you can use against premiums or allow to build. With some policies, sometimes called Type I or Type A, the cash account goes toward the face value of the policy on the death of the policyholder. With a second variety, sometimes called Type II or Type B, the beneficiary receives the face value of the policy plus all or most of the cash account. While Type II is meant to provide a partial hedge against inflation, it demands higher premiums as you get older than Type I.
A variation of a universal policy, often called universal variable life, allows policyholders to choose investment vehicles.
Variable life — With a variable policy, there is usually a wider selection of investment products, including stock funds. As with a universal policy, returns on investments can offset the cost of premiums or build in the account. And depending on the type of policy, the beneficiaries will either receive the face value of the policy or the face value plus all or part of the cash account.
Why should women be concerned?
From New York Life: Many women have either no or too little life insurance. Historically, women were almost never adequately insured. We all have different life situations so what does it mean to us?
- If you’re part of a two-income family: Today, 61 percent of married women bring home a paycheck (compared to just 23 percent in 1950). Husbands and wives are economic partners. Today’s two-income families depend on both pay checks to make ends meet.(Figures for 1995. Source: Washington Post 1/22/97) If anything happened to you — and the income you generate — would your family be able remain in their home? Would your children be able to achieve their education goals? Would your family suffer a severe financial loss? Adequate life insurance can replace your income, remove uncertainty and help guarantee your family’s financial security.
- If you’re a single woman heading a house-hold: Chances are that you have little if any life insurance, according to industry studies — in spite of the fact that you have major financial responsibilities. Of all life insurance policies sold in 1997, only 4 percent were purchased by divorced or widowed women.(“The Women’s Market: Myth & Reality,” LIMRA International, 1999) As a single parent, you may be the sole breadwinner, responsible for the support and care of your children. Your need for life insurance is even more crucial than in dual-parent households, which will have another source of income if one parent dies.
- If you’re a full-time home maker: Far from a dying breed, nearly two out of every five married women are full-time mothers and home makers. This is just as much a partnership as the two-income family in that it takes the efforts of both to make the household function. Your services, while in many respects beyond value, are worth tens of thousands of dollars a year. How would your husband and children manage without you?
- If you’re a single woman: Whether you’re single-never-married or divorced-no-kids-at-home, your need for life insurance may be even greater than for married women. That is because being single isn’t always the same as being without responsibilities. You may have loans. Plus, should anything happen to you, there will be final expenses, which can run into the tens of thousands of dollars. These obligations — which could fall on parents and other loved ones — can be met with life insurance. Just as important, life insurance purchased today can protect your future insurability as you get older. If you eventually marry, your coverage will help protect your husband and, possibly, children. If you choose to remain single, your life insurance can accumulate cash value to help provide a secure retirement for yourself. A cash value life insurance policy can help you accumulate funds on a tax-advantaged basis to supplement your other retirement income.
I’m sure the woman I spoke of at the beginning of this post didn’t think the death of her loved one would happen so soon or suddenly. Death is never something we want to think about happening to those we love but in our wisdom we should make sure that we’re prepared for it nonetheless.