Brian Gruss Licensed Insurance Planner

Study Reveals Financial Impact of a Spouse’s Premature Death

The average financial recovery time for a widow or widower is four to five years after the death of a spouse according to a recent study.  The MetLife study, entitled “Financial Impact of Premature Death,” examines the financial impact associated with the premature death of a spouse.  Results of the survey indicate most Americans remain underinsured and are often required to make significant life changes when confronted with a spouse’s death.

During early August 2003, approximately 1,000 widows and widowers were surveyed to compile the data for the study.  Each of the participants had lost a spouse within a period of 6 months to 5 years prior to the survey. The deceased spouse was between 30 to 55 years old at the time of death.

Here are some of the survey’s findings:

-More than one-third of the surviving spouses received no life insurance proceeds.

-Two-thirds of the spouses reported the death of a spouse had a “major” or “devastating” financial impact on their lives.

-Two-thirds of spouses that received insurance proceeds, received less than 3 times the annual income of the deceased spouse.  (Typical recommendations call for insurance replacement equal to 7 to 10 times the deceased spouse’s annual income)

-One-fourth of beneficiaries received benefits that replaced less than one year of the deceased’s annual income.

-Less than half of spouses who received insurance proceeds felt the coverage was “adequate.”

-Almost half of surviving spouses stated their financial situation was “somewhat worse” or “much worse” after 3-5 years had passed since their spouse’s death.

-Nearly half of deceased spouses lacked a will.

A summary of the study can be found online at www.metlife.com at the MetLife Research Center.

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Return of Premium Rider Makes Life Insurance Buying Easier

Since term life insurance policies accrue no cash value, most policyholders see no return on their investment unless they pass away during the policy’s term and a death benefit is paid out to their beneficiaries. This is true of any insurance policy—if your home never burns to the ground or your car accident history is squeaky clean, you’ll never see one dollar from your homeowners’ or car insurance.

Wouldn’t it be nice if your term insurance policy could act like a piggy bank for you—storing your premiums up for a full refund should you outlive the policy? Believe it or not, with the right rider added to your policy, it can. Unlike other types of insurance, many term life policies offer a return of premium (ROP) rider that guarantees a return of the premiums paid if you outlive the policy.

When a ROP rider is added to your policy, your premiums will increase. When determining whether the ROP rider is in your best interests, you must consider whether the funds paid for the rider would be better invested elsewhere.

As an example consider a ten-year term life insurance policy with a premium of $600 per year. If the ROP rider adds an additional $300 per year, you will pay $900 per year or a total of $9,000 over the life of the policy. At the end of that ten-year term, you will receive the entire $9,000 back from the insurance company.

Otherwise, without the ROP rider, you’d have an extra $300 per year to invest—but you would need to earn greater than 16% per year to accumulate $9,000 after ten years. In addition, refunds received under the ROP rider are tax-free, while you’ll pay income taxes on interest earned in your savings account.

There are certain conditions you must meet to receive the return of premium guaranteed by the rider. If you forget to make a premium payment or allow your policy to lapse, you may no longer be eligible for the full premium payout of your policy, so it is important to keep the policy in force or you will be wasting the extra premium dollars you send to the insurance company.

Tags: Accident History, Beneficiaries, Car Accident, Car Insurance, Death Benefit, Extra 300, Homeowners Insurance, Income Taxes, Insurance Company, Life Insurance Policies, Life Insurance Policy, Piggy Bank, Policyholders, Premiums, Rop, Term Insurance, Term Life Insurance, Term Life Insurance Policy, Term Life Policies, Types Of Insurance

Life Insurance Needs for a Stay-at-Home Spouse

The death of a parent is a devastating event for a family, but the death of a stay-at-home parent can have more than just an emotional impact.  Most families ensure that the wage-earning spouse has life insurance, but what about the stay-at-home parent?

Every family knows the emotional value of the stay-at-home spouse, but what about the literal value of the services that parent provides?  Consider the value of childcare, housekeeping, cooking meals, doing laundry, providing transportation, grocery shopping, arranging home maintenance, etc.  The cost of childcare outside the home is high, at an average of almost $9,000 per year, and can be higher for infants and toddlers.^[1] By looking at the financial equivalent of all the services the stay-at-home spouse provides you can begin to get an idea of the financial impact of that parent’s death on the family.

As soon as the stay-at-home parent becomes ill or passes away, the need for their services begins.  Initially, you may be fortunate enough to have family or friends help out, but it is unlikely that their generosity can continue indefinitely, as they may have their own families to look after.  By providing a stay-at-home spouse with their own life insurance policy, the family can deal with the emotional impact of the loss without worry for the financial impact.

You may be wondering how much life insurance you will need.  It’s an individual answer, as there are no set guidelines and each family is unique.  Look at how your family operates and what services the stay-at-home parent provides.  Generally, you should consider enough insurance protection to cover an individual’s salary for the number of years until the youngest child has graduated college.  In the case of a stay-at-home spouse, the salary would be the literal value of the services provided.  You may also want to consider funeral costs, medical expenses, estate taxes and inflation in your calculations.

There are two basic types of life insurance you can choose from:  term insurance and permanent life insurance.  Term insurance is an affordable way to obtain the death benefit protection at a lower cost than permanent life insurance.  Term policies typically range from 5 to 20 years and may be renewable.  The term policy’s death benefit is only in effect for the duration of the policy.  Renewing the policy can be an expensive option in the long term, but converting the term policy to a permanent life insurance policy may be an option during the first few years of the policy.  Look for a term policy with a conversion privilege so that if you do decide to switch to permanent life insurance, you can avoid having to submit evidence of insurability.

Permanent life insurance can offer coverage for your entire life and accumulate tax deferred cash value. The cash value can be borrowed against for buying a home or paying for college.  Also, the death benefit is typically guaranteed as long as your premiums have been paid and there are no loans due against the policy.  Many permanent life insurance policies allow you to lock in the premium amount for the life of the policy, giving you the comfort of a known premium for the future.

Whichever type of policy you choose, consider life insurance for the stay-at-home spouse in your family.  It can allow you the freedom to be with your family and attend to their emotional needs during a difficult time, instead of focusing on financial ones.

^[1] See www.childcare-guide.com for more information.

Tags: Cooking Meals, Cost Of Childcare, Death Of A Parent, Doing Laundry, Emotional Impact, Emotional Value, Financial Equivalent, Financial Impact, Generosity, Grocery Shopping, Home Maintenance, Housekeeping, Infants And Toddlers, Insurance Protection, Life Insurance Policy, Medical Expenses, Own Life Insurance, Salary, Stay At Home, Worry