Calculating How Much Life Insurance You May Need
Your life insurance needs may vary depending on your wants, your budget, and your stage in life. Read these scenarios, and see which products best suits your personal needs:
Immediate Financial Needs
Michael is a new homeowner and his daughter just got into the college of her dreams. He’s proud, of course, but worries at night about paying the mortgage and still having enough to pay for college. As the primary bread winner, what would happen to her, the house, and the rest of his family if something happened to him? He’s taken on a lot of debt recently, and wants to find a way to ensure his family is financially taken care of, no matter what.
Like Michael, do you want to help:
- With the mortgage
- Fund your child’s college education
- Pay personal debts
- Pay final expenses – medical bills and funeral costs
- Replace lost income
- Cover childcare costs
Consider Term Life Insurance to:
Protect your family financially
Term life proceeds can help protect your family from financial hardship when dealing with a loss.
Provide coverage for short term obligations
Term insurance is typically best for covering obligations that have an expiration date, like mortgages, college costs, or replacing your income during your working years.
Replace activities provided by a homemaker
Cleaning and daycare costs can quickly overburden your finances. Insuring against the loss of a homemaker can help make these services financially possible.
Cover personal debt and final expenses
At the minimum, you should have enough life insurance to cover the costs of personal debts, medical bills, and funeral costs. If you’re uninsured, your “legacy” may consist of unpaid expenses for your family or executor to deal with.
Help secure what your family values most. When you have sufficient life insurance coverage, your loved ones may not have to worry about finances in the event that you can no longer provide for them. Get a quote to get started today.
Future Financial Needs
Darrell’s nearing retirement age, and he’s wondering if he still needs the Life insurance policy he bought in his 30’s. After all, the kids are out of college and on their own, and the house is paid off. Then he remembers what a good financial decision it was to purchase permanent life insurance when he was young. Since he was in better health, he saved money on his premiums and over the life of the policy, he built cash value. Now that he’s nearing retirement, he can use the policy in a variety of ways.
As life expectancies increase and inflation gradually erodes purchasing power, retirement planning becomes even more important. Looking ahead when you’re making life insurance decisions may help provide a variety of options when you’re ready to retire. Your life insurance policy may be able to be used in many ways:
To accumulate value
You can use a permanent Life insurance policy as a way to accumulate value and surrender (cancel) it for the cash value, if need be.
Pay future premiums
By paying future premiums, you can keep the policy in force without additional out-of-pocket expenses.
Borrow cash value2
Use the policy to borrow from yourself! Borrow the cash value and pay it back at a competitive interest rate, while keeping the policy intact.
Fund an annuity
You may surrender (cancel) the policy and use the cash value to purchase an annuity.
Talk with your Farmers agent today to get started.
For Children or Grandchildren
When Holly and Tom became parents, they received a non-traditional gift for their daughter. Tom’s parents purchased a life insurance policy for her. Although it wasn’t something Holly and Tom had ever considered (they already had a life insurance policy for themselves), they found that providing their daughter with her own life insurance policy could help provide a great foundation for her future.
Unlike money kept in some financial products for children, such as 529 college savings plans, a juvenile life insurance policy’s cash value doesn’t have to be used specifically for education. It can be used by a grown child for other purposes, like wedding expenses or starting a business.
Like Holly and Tom, would you like to help:
- Provide your child/grandchild with a financial tool they can access as they get older.
- Protect the future insurability of a child.
- Keep a child’s premiums as low as possible by starting coverage early.
Important cash accumulation
The earlier the policy starts, the longer the policy has to accumulate value. As your child grows, so may the cash value of the policy also grow.
A juvenile whole life insurance policy guarantees the child's future insurability, regardless of their health, lifestyle or residence, and is issued without a physical exam.
As an adult, your child’s health or occupation may prevent them from qualifying for life insurance. A properly designed juvenile whole life policy can ensure coverage for your child or grandchild.
Significant cost savings
The time to get coverage for your child is now - waiting just a few years to start insurance coverage can be costly for you and your child. The earlier you begin, the lower the costs and the longer the policy has to accumulate cash value.
In the event of the death of the original payor, the optional payor benefit could cover the premium payments for you.
Ask your Farmers agent to show you the lasting benefits that a few dollars a month can buy for your child or grandchild.
Legacy Planning and Charitable Giving
Michelle and William are enjoying their retirement, spending a lot of time with family and supporting a variety of charities near to their heart. They’ve seen a lot of success with their family business and investments, and would like their children, and the charities they care about, to continue to benefit from their financial accomplishments. They’re interested in leaving a legacy that can grow and benefit the people they love.
Like Michelle and William, would you like to help:
- Control how your estate is distributed after you’re gone.
- Establish a trust to preserve and manage assets for loved ones.
- Simplify probate proceedings.
- Pay expenses and estate or transfer taxes without liquidating other assets.
- Make charitable or planned giving contributions.
Consider incorporating permanent life insurance in your legacy planning to help:
- Build* cash value you can access generally income tax free3 to use for a family’s loss of income, mortgage costs, or educational needs.
- Provide a financial legacy for beneficiaries.
- Help cover probate and estate tax costs4, leaving your property or business intact.
You can also set up a charitable gift using life insurance by:
Donating an existing policy
Many people find their life insurance needs decrease after children are grown and mortgages are paid down. If you have more life insurance coverage than you need today, you may consider donating a policy you no longer need. If you wish, you may continue paying the premiums, with each premium payment being a gift to the charity. Alternatively, the charity may make premium payments in expectation of the eventual death benefit. If the policy has cash value, the charity may choose to surrender or borrow against the policy for funds today.
Leaving a bequest at death
If your estate is the beneficiary of your policy, your will can directly use some or all of the proceeds of your life insurance to make a gift to charity, free of any federal estate tax. This will be true whether you or the charity owns the policy. You can designate your favorite organizations as beneficiaries on an existing policy. If you are concerned that your life insurance needs may change in the future, you may name the charity as a “revocable” or “contingent” beneficiary and still retain flexibility and control.
Leaving a financial legacy is a great way to positively affect future generations. Make sure your desires are communicated to preserve your assets or that contributions are handled as you wish. Talk to your Farmers agent to begin planning now.
Protecting your Business
Carla runs a successful flower shop in the suburbs. As her business has grown over the years, she’s added employees to cover the workload. She knows that success in business requires careful planning, but what she hasn’t planned for is what will happen to her business if something unexpectedly happened to her. Would it be able to continue? She worries about her employees, too. As her business has grown they have become vital to its success. What would she do if one of them were to die? How would she deal with the loss?
Without proper planning, the premature death of a business owner may result in assets being liquidated, the business being sold, or the business becoming a burden on family members.
If you’re a business owner like Carla, and want to:
- Fund a buy-sell agreement.
- Help maintain a cash flow for the business.
- Help provide liquidity to help sell or re-establish the business.
- Have key-person coverage.
- Offer a low-cost optional employment benefit.
- Help secure a business loan.
Consider permanent life insurance that includes business and personal coverage.
A customized life insurance package can meet your business coverage needs with:
Executive Bonus Plan
Keep and recruit your best and brightest employees with an Executive Bonus Plan. Under the plan, you provide select employees an incentive by allocating funds for the purchase of a life insurance or annuity product. Your employees will appreciate the ability to obtain a life insurance product they control. You will like the immediate income tax deduction for the employee bonus and freedom from further administration and/or benefits tracking.
Key Person Insurance
Those select employees with special skills, knowledge or relationships that would be difficult or expensive to replace are the backbone of your business. If one of these vital people became disabled or died, you can use the death benefit or cash value from the policy to fund replacement and retraining expenses and help make up for lost business during the transition.
Contact your local Farmers agent today to build a customized package that includes the life, business and personal coverage that will meet your unique needs.
2 Policy loans and withdrawals will reduce cash surrender value and death benefit. Policy loans are subject to interest charges. If your policy is a modified endowment contract, loans and withdrawals may be subject to taxes and penalties.
3 Distributions from a life insurance policy in the character of partial surrenders (withdrawals) up to basis or policy loans will generally be income tax free, provided the policy does not violate Modified Endowment Contract (MEC) guidelines and the policy is not terminated during the lifetime of the insured. MEC guidelines are rules in the Internal Revenue Code which specify maximum premiums that can be paid without triggering adverse tax consequences for withdrawals. A policy termination during the life of the insured can cause the owner a single taxable event for any gains in the policy that were borrowed or withdrawn on or before the termination date.
4 This material is for general informational purposes only and is not legal or tax advice. In general, partial withdrawals from a permanent life insurance policy in excess of the policy’s basis are taxable, and limited circumstances exist where death proceeds will be taxable. The material may not reflect your particular circumstances. Neither Farmers Insurance nor any of its agents, employees, or registered representatives is authorized to provide tax or legal advice. Please consult your tax or legal advisors for advice specific to your situation. Carefully read the contract prior to purchasing any life insurance or annuities. This material presents our general understanding of current law, as tax laws and IRS administrative positions may change. This material is not intended to, and cannot be used to avoid any Internal Revenue Service penalties.