Parental Responsibility and Life Insurance

Part of being a responsible, caring parent is planning for the future, and that includes planning for a future that may not include you. No one wants to think about dying, especially dying early, but the fact of the matter is, it does happen and if it does you want to insure your child will have everything he or she needs. Here are five main reasons why every new parent needs life insurance.

1. Factoring in Lost Income to Support Your Children: While the emotional loss of a loved one can never be measured, this loss can lead to serious financial repercussions. Life insurance helps to protect your family from having to deal with the sudden loss of income. The amount of the benefit you select will vary a bit depending on the age(s) of your children, however it should equal at least ten to twenty years worth of your current salary. If one parent stays at home with the children, he or she should also purchase life insurance because the work that parent does around the home is valuable. If something were to happen to the stay at home parent, it may be necessary to hire outside help, which can be quite costly. Life insurance can also help pay off any debt that has been accumulated, as debt will be passed on to the estate after death. You will want to make sure you provide for, and do not leave any burden to, your children.

1. Educational Expenses: Just as you want your children to attend good schools now, you will also want the same in the future. In the event of your passing, life insurance can help to cover education expenses to insure your children will still be able to attend private school and/or college.

1. Health and Illness Costs: Some forms of life insurance can help pay for any expenses you may incur due to a prolonged illness. These policies allow you to have access to a set percentage of your total benefit over your lifetime in the event you need care. This can be quite beneficial to both you and your family as you avoid many unneeded and unexpected expenses.

1. Tax Liabilities: Some life insurance policies offer the option of also purchasing estate tax insurance, which can be used to pay off all estate taxes at the time of your death. This can be a tremendous asset to your family as it allows them to acquire the entire estate without the worry of having to deal with the tax expense.

1. Expensive Funeral Costs: The payout from your life insurance policy can help to pay for funeral expenses. Funerals can be quite costly, so this extra money can be of great help to your family.

]]> http://www.cloudfi.com/resources/life-insurance/importance-of-life-insurance-for-new-parents/feed/ 0 http://www.cloudfi.com/resources/blog/the-basics-of-umbrella-liability-insurance/ http://www.cloudfi.com/resources/blog/the-basics-of-umbrella-liability-insurance/#comments Wed, 12 Aug 2009 04:48:12 +0000 George http://www.cloudfi.com/resources/?p=173 What is it?

Umbrella insurance refers to a liability insurance policy that protects your assets and future income beyond the standard limits in your auto and homeowner’s policies.  It’s an umbrella because it  covers liability claims from all policies underneath it, such as autos and homeowners policies.

For example, if you have an auto insurance policy with liability limits of $500,000 and a Homeowners policy with a limit of $300,000, then with a million dollar umbrella, your limits become in effect, $1,500,000 on the auto policy and $1,300,000 on a homeowners liability claim.

It also covers other liabilities such as the following:

• Libel
• Slander
• Invasion of Privacy

Why do I need it?

1. Your automobile liability coverage may not be enough in a lawsuit.  Most people have a $500K limit on their automobile liability insurance.  The average payout in personal injury lawsuits can often be much higher. ( ie. Average award in Florida – $1,819,751, Average award in Michigan – $1,089,638)
2. Your homeowners or renter’s liability coverage may not be enough in a lawsuit. Most homeowner policies are capped at $500K.  Again, this may not be enough if an uninvited visitor to your home suffer an accident.
3. You are self-employed. Your homeowner’s policy does not always cover activities that relate to self-employment.  An umbrella policy will provide that extra coverage here.

For more background, read the a recent NY Times article on the topic.

What to look for?

Umbrella liability insurance is much less that most people assume.  Here’s a general rule of thumb which can vary based on your individual situation.

• First $1M: $150-$300 per year
• $2M – $9m: An additional $150/year for each $1M in coverage.
• $10M or greater: Depends on your insurer.

You’ll want to find an insurer that has a number of other clients with your net worth profile.  If that is the case, they will have a larger risk pool to work with and your rate will generally be lower.

How do I get it?

Start with your auto or homeowner’s insurance company.  Typically they are more than glad to provide you with such a policy.

If you find that the premium is costly or you don’t qualify for some reason, try shopping your automobile, homeowners or renters and umbrella policy to other insurers via a broker.  We’ve provide some leading online brokers below.

• NetQuote: BBB Accredited.
• InsWeb: BBB Accredited.  Recommended by Forbes and Kiplingers.
• Insure.Com: BBB Accredited.  Forbes Top Pick.

For example, a 30-year term life policy for a 33-year-old man may cost $939 in annual premiums, compare that to $11,290 for a whole-life policy.  So instead of choosing the whole-life, he invests the $10,351 annual difference in a portfolio with a net after-tax return of 5.19%.  In 30 years, the invested money grows to $746,997.  However, if you still need coverage after the term-life expires, the annual premium might be something like $29,589.

Professionals disagree on which option is better.  Some argue that “buy term insurance and invest the difference” does not work so well when the market craters, like last year; but I think that really depends on how you are investing that money.  The way to think about it is what does the insurance company do with my money when I buy the whole-life?  They go and invest it in conservative instruments to match their long-term liabilities, not in a 80% equity portfolio.  We can do the same.

In fact, to make things simple, buy term (ladder them if expect expense needs to change over time) and invest the difference in a target date fund with the same date as when the term-life policy expires.  Hopefully you will be smiling happily to know 10, 20, or 30 years from now that you’ve pocked the compounded difference instead of your friendly insurance company.