Considering Life Insurance: A Financial Security Basic
By Reneé Leskiw
As a solo or small firm lawyer, your days are busy. Probably the last thing on your mind is drafting a will or a living will. However, death can play a major role in a topic you probably think about every day—your financial security.
Although it is an uncomfortable topic to consider, to ensure you’re on solid financial ground, you should consider what would happen to the people you love if you are gone. If family members depend on your income, you probably want to ensure they are well taken care of in the event of your death. If nothing else, you’ll want to have arrangements for your end-of-life expenses including funeral and burial fees. If you have any debt, including a mortgage, in the event of your death, that debt is transferred to your estate. If you have a spouse who is jointly liable on one or more debts, he or she will become solely responsible. Can he or she pay that mortgage alone?
An easy and inexpensive way to ensure that these final expenses are accounted for and your dependents are financially secure is to purchase adequate life insurance. Money from your life insurance can be used to settle debt and to provide financial security for those dependent on you.
Even if your employer offers some life insurance coverage, you want to be sure that your life insurance portfolio protects all of your financial obligations. Employer-provided coverage can be only one to two times your annual gross income. However, the financial need can be 5, 10, or 20 times your annual gross income.
As you evaluate your financial plan, you may find that the life insurance you already have in place is not enough and want to consider supplementing that coverage.
There are many types of insurance products to consider. Choosing which option is right for you will depend on what obligations you are trying to provide for, how long you need that coverage and how much you are willing to pay for the insurance.
Term life insurance is perhaps the most basic and least expensive form of life insurance. Term life provides protection for a specific period of time, so it can cover the same period of time as your mortgage, while children are in the home, or when children will be in college. “Level term” life offers premiums that are locked in for the period that coverage is in effect. Level term life is usually available for 10, 15, 20 or 30 years.
Permanent life insurance offers life-long protection but with higher premium rates than term life insurance. Permanent life insurance may have the option of earning dividends, although not guaranteed, that can be applied toward the premium.
Whole life insurance offers protection throughout your entire life as long as premiums are paid. This insurance includes death and living benefits by allowing loans or withdrawals against the value of the policy while still living. Any withdrawals or loans will be counted against the death benefit. Premiums remain level throughout the life of the policy, with rates usually much higher than term insurance.
Universal life insurance provides permanent life insurance protection that pays the benefit amount if death occurs before the maturity date or pays the cash value (which accumulates through premiums paid over the life of the policy) if the insured is living at the maturity date. Insurance costs increase each year based on age.
Whatever choice you make regarding the type of life insurance, now is the time to consider applying. For the application process, no matter the specific product, you will likely be required to provide your health history. If you apply now, when you’re younger and probably most healthy, you may receive lower premium rates throughout the life of the policy.
Reneé Leskiw is the executive director of the American Bar Endowment (ABE).
Established by the American Bar Association in 1942, the ABE is a §501(c)(3) not-for-profit organization which makes grants to support the good works of the legal profession. Among other activities, the ABE sponsors insurance programs for all ABA members that provide a unique opportunity to get quality, affordable insurance from trusted insurers, while supporting legal research, education and public service through donation of dividends. The ABE sponsors Group 10- and 20-year Level Term Life Insurance plans at affordable rates exclusively to ABA members. Learn more at http://www.abendowment.org/lt.asp.
© Copyright 2009, American Bar Association.