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Although consumers widely recognize the importance of life insurance
in financially protecting their families, most need significant help in
determining the type and amount of coverage appropriate at different
life stages, according to the National Association of Insurance
Commissioners (NAIC). Acknowledging September as "Life Insurance
Awareness Month," the NAIC has assembled useful information about the
subject on their consumer education Web site, Insure U
(www.InsureUonline.org).
"While many adults with dependent children living at home know they need life insurance
to protect their families, not all have it, and few young singles even
take the time to evaluate their options," said Alessandro A. Iuppa,
NAIC President and Superintendent of the Maine Bureau of Insurance. "To
help educate consumers about if and when to purchase, increase or
reduce life insurance at different stages in their lives, we've created
Insure U."
Consumer research conducted by the NAIC earlier this year indicates:
- Only
35 percent of young singles have life insurance. Furthermore, few young
singles (28 percent) express high levels of confidence in knowing the
difference between the two basic types of life insurance, term and
permanent, and a similar number (27 percent) are highly confident that
buying life insurance when they are young will guarantee their coverage
later in life.
- Among young
families, nearly two-thirds (64 percent) believe it's "very important"
for both spouses to have life insurance. Yet fewer than half (48
percent) say they actually have purchased life insurance for either
spouse.
- Across all life
stages, a significant number of consumers (around 40 percent) fail to
review their life insurance policies on an annual basis.
According to the NAIC, there are three life insurance basics that all consumers should consider:
1.
Start by considering how many people are financially dependent on you,
what their major expenses are likely to be and whether you're likely to
leave them with substantial debts or taxes to pay on your estate. Life
insurance can help on all of those fronts.
2. Evaluate the two main types of life insurance: term and permanent. As its name implies, term life insurance
pays a death benefit if you pass away within a specified time period
(typically a term of one to 20 years). In contrast, permanent life
insurance (which comes in many varieties such as whole life, universal
life and variable life) includes both a death benefit and the ability
to build up cash value over your entire lifetime.
In
general, term life insurance is much less expensive than permanent
life. In fact, term life premiums have decreased markedly during the
past decade due to the fact that Americans are living longer on
average. Consumers who purchased their policies more than a few years
ago should check out current rates. Also, consumers should ask whether
the policy they are considering charges a surrender or cancellation fee
if they decide to drop the policy or switch to another one.
3. Understand the major factors that can affect life insurance premiums.
Some are uncontrollable, like the age at which one purchases a policy
or a serious pre-existing medical condition, like cancer or heart
disease. Other factors are much more dependent on an individual's
behavior, like poor health habits (e.g., smoking and excessive
drinking), driving record (e.g., accidents and Driving While
Intoxicated citations), engaging in dangerous hobbies (e.g., sky
diving, car racing or rock climbing) and even where one lives, since
mortality rates in a geographic region may be used by life insurance
companies to help establish premiums.
The
NAIC's consumer Web site, Insure U, provides focused tips to consumers
based on their likely needs in different life stages. For example:
-
Young singles who want to be sure that they can get life insurance
later in their lives when they may develop health problems should
consider purchasing term life insurance that is guaranteed to be
renewable. They may also want to consider a term policy with a
conversion option, which enables them to switch, for a set fee, to a
cash-value policy at a time when they have more money. Those serving in
the military should consider Serviceman's Group Life Insurance, low
cost term life insurance available to all those in active duty.
- Young
families should consider purchasing life insurance for both spouses,
even for a non-working spouse, to help pay for child care and other
domestic services. At this life stage, term insurance may be the most
cost effective when their salaries are still relatively low and they're
paying off a mortgage. Some parents purchase small life insurance
policies for their newborns to guarantee that they'll have some
insurance if they develop health problems.
- Established
families should consider the probable costs of their children's college
education when determining how much life insurance they may need.
- Empty
nesters/seniors should evaluate whether they can reduce their life
insurance coverage based on such factors as whether their spouse is
alive, their home is paid off, their children and/or grandchildren are
financially independent, or if they anticipate high estate taxes that
would be a burden on their heirs. Some older individuals with
significant financial assets may choose to keep their life insurance in
force because they view insurance as an estate planning tool that
enables them to leave their loved ones money that is exempt from income
and estate taxes.
"All consumers should
remember to review their life insurance policy every year before paying
their premiums and update it to reflect any major changes in their
lives - like marriage, the birth of a child, divorce or the death of a
spouse," said Catherine J. Weatherford, NAIC Executive Vice President
and CEO. "Before signing up for any kind of insurance, consumers should
check with their state insurance department to make sure the company
offering the policy is legitimate, solvent and authorized to do
business in their state."
For more information about insurance, consumers can visit the NAIC's consumer education Web site, Insure U.
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