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

College Funding with Permanent Life Insurance

If you own a cash value life insurance policy-universal, whole, or variable-you may be sitting on a potential gold mine for funding your children’s college education.  Why?

When you consider buying life insurance, the main reason must always be to protect your family’s lifestyle and cover their future needs.  In other words, life insurance must always be purchased because there is a need.  But there are additional features that may let you use this same life insurance for living needs, too.  Permanent life insurance-life insurance that builds cash value-can help you accomplish many goals:

·        It lets you accumulate significant cash without current taxation.[1]

·        Depending on the type of policy, you can pay additional premiums and further enhance this cash accumulation feature and the associated tax benefits.

·        There is a “borrowing” feature that lets you take out potentially large amounts of money without paying taxes.  When you pay the money back, you are repaying yourself rather than a bank.[2]

·        You may never have to pay the money you borrow back, if the policy is adequately funded.[3]

You can borrow from your life insurance policy cash value for just about any reason.  Of course, you need to pay enough in premiums to keep the life insurance policy “in force” and borrowing may mean paying more premiums to keep your policy cash value at a suggested level.  But, as long as you manage the money you borrow and keep making any necessary premium payments to the insurance company, you may be able to borrow much of the cost of your children’s college education and still keep your insurance.

Even better, if you have a sufficiently high cash value, and you keep making any necessary premium payments, you may never need to pay back the money you borrowed.  This is a fairly sophisticated approach though, so always consult with your insurance and tax advisors before you take any policy loans.

Of course, nothing is a free ride.  If you do not maintain a sufficient cash value and/or pay enough in premiums, your policy could “lapse”-it could fall apart because there is not enough cash value or cash inflow to provide the agreed upon life insurance benefit.  In this case, you might be able to reduce the policy value (face amount paid at your death) so there is enough money.  If you don’t take the right steps to keep your life insurance policy “in force”-paying premiums, paying back loans and/or maintaining enough cash value to cover the policy costs-you could lose your life insurance.  If this happens, you may have a very nasty tax problem.  Generally, if you allow an insurance policy to “lapse,” you will owe tax on any cash value above the actual amount you paid in premiums, and any unpaid loans get added to this cash value.

So, if you’re looking for additional cash to pay for that college education (or many other expenses), you may need to look no farther than your own life insurance policy.

[1] Check with your tax advisor to ensure your policy will not be subject to current taxation on cash value growth.

[2] Please check with your insurance and tax advisor to make sure your loan meets certain guidelines.  Loan interest rates may apply.

[3] Check with your insurance advisor to ensure your policy is properly structured.  If your policy lapses with an outstanding loan, loan proceeds may be subject to taxation.

Tags: Buying Life Insurance, Cash Accumulation, Cash Value Life Insurance, Children Education, College Education, College Funding, Gold Mine, Insurance, Insurance Company, Insurance Life, Life Insurance Policy, Lifestyle, Paying Taxes, Permanent Insurance, Permanent Life Insurance, Premiums, S College, Sophisticated Approach, Taxation, Universal