to feel that they’re wasting money on an insurance policy they hope to never use.
Agents usually sell cash-value life insurance as permanent protection. The reality is that people who buy term insurance generally hold it as long as they have people financially dependent on them (which usually isn’t a permanent situation). People who buy cash-value insurance are more likely to hold onto their coverage until they die.
Cash-value life insurance can serve a purpose if you have a substantial net worth that would cause you to be subject to estate taxes. Under current tax law (which could, of course, change), you can leave up to $5.43 million – free of federal estate taxes – to your heirs. Buying a cash-value policy and placing it in an irrevocable life insurance trust allows the policy’s death benefits to pass to your heirs free of federal estate taxes.
Choosing where to buy life insurance
If you’re going to purchase life insurance, you need to know where to go. You can look at the following two places:
✓ Your local insurance agent’s office: Many local insurance agents sell life insurance, and you certainly can obtain quotes and a policy through them. As with any major purchase, it’s a good idea to shop around. Don’t get quotes from just one agent. Contact at least three. It costs you nothing to ask for a quote, and you’ll probably be surprised at the differences in premiums.
✓ An insurance agency quote service: The best of these services provide proposals from the highest-rated, lowest-cost companies available. Like other agencies, the services receive a commission if you buy a policy from them, but you’re under no obligation to do so.
To get a quote, these services ask you your date of birth, whether you smoke, some basic health questions, and how much coverage you want. Services that are worth considering include
• AccuQuote: www.accuquote.com; 800-442-9899
• ReliaQuote: www.reliaquote.com; 800-940-3002
• SelectQuote: www.selectquote.com; 800-963-8688
• Term4Sale: www.term4sale.com
Long-term disability (LTD) insurance replaces a portion of your lost income in the event that a disability prevents you from working either permanently or temporarily for an extended period of time. For example, you may be in an accident or develop a medical condition that keeps you from working for six months or longer. During your working years, your future income earning ability is likely your most valuable asset – far more valuable than a car or even your home. Your ability to produce income should be protected or insured.
The following sections point out why you should have disability insurance and help you determine the type of coverage you need to protect your income.
Why most people lack disability insurance and why you need it
Most folks lack long-term disability insurance. The two main reasons people don’t obtain this important type of insurance are as follows:
✓ Their company doesn’t offer it. Just three in ten workers are offered access to an LTD plan. Only 19 percent of those working for smaller employers – those employers with fewer than 100 employees – have access to an LTD plan. And just 6 percent of part-time workers have access to LTD insurance.
✓ They don’t enroll. Even among those in the minority who have access to LTD, many people don’t enroll. A common reason folks bypass coverage is that they believe their chances of disability are rare. Another perception is that only old people become disabled. Both of these perceptions are wrong.
✓ Life is uncertain. You can’t know when and what type of disability you may suffer. That’s because many disabilities are caused by medical problems (arthritis, cerebral palsy, diabetes, glaucoma, multiple sclerosis, muscular dystrophy, stroke, and so on) and accidents (head injuries, spinal injury, loss of limb, and so on). Although older folks are at greater risk for more severe medical problems, plenty of people in their 20s, 30s, and 40s suffer accidents or major medical problems leading to disability.
✓ Most applicants for Social Security disability benefits coverage are turned down. You can receive payments only if your disability will result in death or if you aren’t able to perform any substantial, gainful activity for more than a year.
✓ Even if you do qualify, your state’s disability plan and Social Security insurance programs won’t provide you with sufficient coverage. Many people are mistaken in thinking that their state’s disability plan and the Social Security disability insurance program will take care of them if they become disabled. Unfortunately, those programs don’t provide adequate coverage. State programs typically only pay benefits for one year or less, which isn’t going to cut it if you truly suffer a long-term disability that lasts for years. While one year of coverage is better than none, the premiums for such short-term coverage often are higher per dollar of benefit than through the best private insurer programs.
Similarly, although Social Security disability benefits can be paid long term, remember that these payments are only intended to provide for basic subsistence living expenses. Those earning more than $20,000 per year find that less than half of their income is replaced by Social Security disability payments. As Table 2-2 shows, the higher your income, the smaller the portion of your income will be replaced by Social Security disability.
✓ Worker’s compensation, if you have coverage through your employer, won’t pay benefits at all if you get injured or become sick away from your job. Such narrow coverage that only pays benefits under a limited set of circumstances isn’t the comprehensive insurance you need.
Table 2-2 The Portion of Your Income Being Replaced by Social Security Disability Benefits
Identifying needed disability coverage
Unless you’re already financially independent,
