Life Insurance Policies for a Low $2,000, Low Cost Life Insurance for Veterans

1. If you want insurance protection only, and not a savings and investment product, buy a term life insurance policy. See life insurance for more information.

2. If you want to buy a whole life, universal life, or other cash value policy, plan to hold it for at least 15 years. Canceling these policies after only a few years can more than double your life insurance costs.

3. Check your public library for information about the financial soundness of insurance companies and the prices they charge. The July issue of Consumer Reports is a valuable source of information about a number of insurers.

An important factor is to determine how much life insurance you need.
First step: Determine what the surviving members' short- and long-term economic needs are likely to be. Then, estimate the amount of these needs covered by available resources (savings, home equity, existing insurance, pension benefits, veterans' benefits, and Social Security). Buy only enough life insurance to make up the deficit between needs and available resources.

How to determine needs:
Immediate cash for death-related expenses.
For uninsured medical costs, funeral expenses, debts, taxes, and estate-settlement fees (including the lawyer's bill). Minimum amount of cash: $4,000.
Readjustment fund. Takes economic pressure off the family, allowing them to make important decisions without haste. Optimum size: Six to 12 months of the lost net income of a working parent, or the one-year cost of replacing the family services of a nonworking parent.

Mortgage fund. Mortgage canceling life insurance gives survivors relatively low-cost housing (that is, they pay only taxes and upkeep). If they decide to sell the house, insurance relieves the pressure to sell too quickly at a distress price.
Family income. Make two budgets and periodically review them. One budget applies if the father's income is lost. The other applies either to replace a working mother's lost income or the cost of replacing her services at home.
Emergency fund. For an unexpected crisis, such as a major illness. Amount: About $2,000 (adjust for the size and health of the family).
Widow's income. Drops in proportion to her decreasing financial responsibility to the children. After the children are on their own, she may not need extra income if she remarries or takes a job. Otherwise, she would need extra income if she does not remarry or work; or Social Security benefits stop when her youngest child turns 18 and will not resume until she reaches 60.
Special funds. To cover the cost of the children's college educations, and so on.

To Life Insurance Policies for a Low $2,000, Low Cost Life Insurance for Veterans- Top

Some guidelines:
Comparison shop for price and quality of insurance coverage.
Fill short-term needs, such as mortgage protection or supplemental income during the children's early years, with the lowest-cost term insurance available. Fill long-term needs with the least expensive whole-life insurance.
Know your life-insurance needs before talking to insurance agents. Don't get pressured into the wrong purchase.

Useful rule of thumb:
After the death of its principal income producer, a family requires 75 % of its former after-tax income to maintain its standard of living, according to a Citibank report. It must, according to that report, have at least 60 % to get along at all.

While the chart shows insurance needs, it would be more useful to say that it shows capital requirements. Those requirements can be met by life insurance or through savings and investments, employee benefits, or inheritance. Thus, to the extent that the independent capital resources are built up, insurance needs diminish.
Example: An individual, aged 55, with earnings of $40,000 and a net worth of $240,000, instead of requiring insurance in the face amount of $280,000, could get by with $40,000 in life insurance coverage and still meet the seven-time-earnings multiple indicated by the chart.

Source: Consumer Information Center

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