Brian Gruss Licensed Insurance Planner

Appreciating the Value of Life Insurance

Whenever someone passes away there is usually an associated financial loss. Such loss could be the primary income for a family or the replacement value of someone responsible for the care of a child or disabled parent. It could also be a business executive in charge of sales or an employee who managed the operation when senior management was absent.

This potential financial loss is often referred to as a person’s human life value. The value itself is calculated based on the future loss of an income stream, the future cost of replacement, or the immediate impact to a company while it attempts to replace the key employee.

For most families, the potential loss of income is the primary reason to buy life insurance. Losing the paycheck of a working spouse will leave most families in a tenuous situation. Their normal lifestyle becomes vulnerable on a reduced income.

In years past, the primary breadwinner was usually the father. The mother tended to the house, while the father headed to the office. Mom was there to welcome the kids home from school and Dad brought home the paycheck. Times have changed and today women participate equally in the workforce. Despite what continues to be an income discrepancy between the sexes, the money Mom earns is essential to the financial well being of the family.

Additionally, it is no secret that consumer debt in the U.S. is on the rise. Government data shows that Americans literally have a negative savings rate (i.e. we spend more than we earn). As such, any reduction in take home pay can potentially devastate literally hundreds of thousands of families. While this scenario is harsh enough while both parties are alive and well, the reality of what happens at the death of either breadwinner is frightening.

Because of these reasons, life insurance continues to play an important role in any financial plan. In fact, it should be the primary asset for families that stand to experience severe lifestyle disruptions should a spouse pass away. Unfortunately, the value of life insurance is frequently misunderstood by those who need it the most.

There are many variations of life insurance products to consider, but that’s a topic for another day. The important message here relates to the extraordinary value of life insurance itself, not any particular policy type.

Indeed, there are very few, if any, recipients of a death claim who have asked their insurance agent about the type of coverage. The fact is the tax-free death benefit provided a welcomed amount of cash at precisely the time when money was needed the most.

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How Much Life Insurance Is Enough?

The goal of life insurance is to ensure your family is financially protected if something were to happen to you. If your loved ones depend on your income, they could find themselves in serious financial stress if that cash flow was suddenly cut off.

Unfortunately, too many consumers mistakenly believe that they have enough life insurance to adequately protect their loved ones—when in actuality, they are severely underinsured.

Just look at the numbers: Americans have a combined $10 trillion worth of life insurance coverage, according to a 2008 study by the American Council of Life Insurers. That may seem like an incredible amount of insurance—however, it’s still not enough. As a matter of fact, $10 trillion represents only 72% of our nation’s combined annual income, which totals a whopping $14 trillion.

In other words, thousands of Americans don’t own enough insurance to cover even one year’s salary. These people may have some life insurance, but it’s simply not enough to ensure their family can maintain their current standard of living.

Delving deeper than the lump sum

When you look at your coverage as a lump sum, it may seem like a lot of money. Therefore, you may assume there will be plenty to protect your family in the event of your death. However, it’s important to consider that lump sum in relation to your annual income.

When determining whether or not you have enough insurance, you may want to ask yourself a few important questions: How much do I earn each year? How many years would I want my family to be covered if something were to happen to me? How much is going to be enough to cover all of their expenses? What standard of living do I want them to have?

The answers to these questions may lead you to a realization: that you don’t have enough life insurance.

Calculating the right amount

There are a few different ways to calculate the amount of life insurance you need to adequately protect your family. Some insurance experts say you should simply multiply your annual income by three times while others say you need at least eight times your annual salary.

However, many professionals say this “income multiplication” method is not accurate enough. Because each family faces a unique set of circumstances and needs, you may want to consider some factors other than just annual income. Figuring out the right amount life insurance requires a comprehensive evaluation of your financial goals, debts, investments and the quality of life you want your family to have.

Here are a few things to take into consideration:

• Monthly expenses: Tally up all your family’s monthly expenses, including your mortgage payment, car payments, utilities, groceries, food, clothing and any other costs. The death benefit on your life insurance policy should be able to cover these expenses for at least a few years. This will ensure that your family will not undergo a decreased standard of living if you were to die.
• Surviving parent’s income: If something were to happen to you, would your spouse need to work to support your children? This may be a problem if you have young children or a disabled child who needs extra attention. If taking a job could interfere with your spouse’s ability to care for your children, you’ll probably need more life insurance. This will ensure that the surviving parent doesn’t have to work—or at least not until your children are older.
• College tuition: Do you want to fund your children’s college education? If so, you should also factor this into your life insurance calculation. It would probably be difficult for the surviving parent to pay college tuition on a single income.
• Factoring in inflation: Don’t forget to consider the cost of inflation. You can expect cost of living to increase about 4% to 5% each year. That means if you purchased a life insurance policy many years ago, the death benefit may not be enough to pay for today’s cost of living—let alone tomorrow’s.

Figuring out how much life insurance you need to protect your family is a complex process that involves considerable research and thought. If you’re struggling to figure out how much life insurance is enough, you may want to meet with an expert. Brian Gruss can help you determine how much insurance you need and what you can realistically afford.

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Four Solutions to Medical Bill Problems

There’s just something a little scary about receiving a medical bill or a letter from your insurance company claiming you owe money. These tiny sheets of paper have the power to send many of us into full-on panic mode.

As soon as you receive a medical bill or explanation of benefits (EOB) from your insurance provider, do you immediately whip out your checkbook and mail in your payment? Are you terrified you’ll be turned over to a collection agency if you don’t pay the bill right away?

Not so fast! Before you cough up the cash for that medical bill or EOB, it’s important to do a little homework. Don’t simply assume that you have to pay the bill. First of all, it could be a mistake. Secondly, the doctor’s office or hospital will not send your bill to collections right away. And most importantly, if you pay the bill only to realize later that it was covered by your insurance, it can be extremely difficult to get a refund.

So, put away that checkbook and read on to learn the solutions to four common medical bill problems:

Common Problem #1:  You receive a bill for a covered service.

Let’s your medical provider sends you a bill for a service or procedure that your insurance has always covered in the past. Don’t assume your insurance provider has simply changed their coverage. More often than not, this just means that the insurance company hasn’t had a chance to pay the bill.

If you receive a bill for commonly covered service, let it sit for 30 days. This should give your insurance provider plenty of time to pay off the bill. However, if you receive another bill from the medical provider, give your insurance company a call to find out what’s going on. You should also call the medical provider to let them know that you’re working with the insurance company to make sure they pay.

Common Problem #2: You see the word “DENIED.”

You go to the doctor or dentist for a standard service that’s usually covered by your insurance company. However, a few weeks later, you receive a claim stamped with the menacing word, “DENIED” in bright red letters.

Don’t freak out because it’s probably just a mistake. The medical provider may have incorrectly coded the treatment. Call your insurance company and make sure the claim matches the actually service you received. If not, let them know what happened, and find out the proper code for your treatment. You may need to follow up with the medical provider, as well.

Common Problem #3: You have a jumbled pile of EOBs and bills and no idea what you owe.

If you have a whole mess of EOBs and medical bills, it can be difficult to figure out what goes with what and how much you need to pay. That’s why it’s important to keep all of your medical records as organized as possible. A little bit of organization could save you a whole lot of time, money and frustration down the road.

When you receive a bill from your medical provider, staple it to the coordinating EOB from your insurance company. Keep all of your bills in a folder so you can easily and quickly access them. If you call your insurance company or medical provider to discuss a particular claim, write notes on the EOB or bill to keep track of who you talked to and what you discussed.

Common Problem #4: Only a portion of your claim was paid.

Let’s say you received a standard medical treatment that’s typically covered in full by your insurer. But a few weeks later, you discover your insurance company covered only a portion of the claim. It could be a slip-up on the insurer’s end or the medical provider could have coded the treatment incorrectly. But more often than not, this happens when you go to an out-of-network provider.

If that’s the case, you’ll probably have to pay this claim. When you go to a provider that is not part of your insurer’s network, you often have to pay more out of pocket. However, if you receive this kind of bill and you’re certain you saw a network provider, give your insurance company a call. It could simply be a mistake.

Of course, this is just a handful of medical billing problems. Patients deal with these and countless other medical billing issues day in and day out. So, the next time you receive a bill or EOB in the mail, don’t panic. When in doubt, call your insurance company and/or the medical provider to discuss your concerns.

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