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The Honolulu Advertiser
Posted on: Thursday, September 21, 2006

When it comes to life insurance, don't shirk your responsibility

By Michelle Singletary

WASHINGTON Did you know September is Life Insurance Awareness Month?

I know. These campaigns sound totally contrived. Still, this one, coordinated by the Life and Health Insurance Foundation for Education, can be used as a reminder to give yourself an insurance check-up.

When was the last time you reviewed your life insurance policy? If you have insurance, is it enough? Do you even know what enough is?

The fact is, 44 percent of all U.S. households either don't own life insurance or think they should own more, according to a new study by LIMRA International. Those who feel they don't have enough generally believe they have enough insurance to replace six years of income, but own only enough to replace only 2.8 years.

I understand it's no fun shopping for a product that can't be used until you're dead. But for the sake of your next of kin, it's important to know what you're buying and how much.

According to the National Association of Insurance Commissioners, before you buy life insurance you first need to understand its purpose. Life insurance is meant to replace your income. If you have no dependents a spouse, children, parents chances are you don't need life insurance. So start the analysis by simply asking yourself this question: "Who is financially dependent on me?" Then ask: "What major living expenses will these folks have to pay if I die?"

For a good independent source of information on life insurance go to www.insure uonline.org, created by NAIC.

Next, decide which type of insurance best suits your situation. There are two main types of insurance term and permanent. Just like it sounds, term life insurance provides insurance for a certain period of time, typically one to 20 years. Term policies pay a death benefit only if you die during the period of coverage.

Some policies can be automatically renewed, and some can be converted to permanent insurance without the need for a medical exam.

Then there is permanent life insurance, also known as a "whole life" or "universal and variable life" policy. Permanent life insurance includes a death benefit as well as a way to build up cash value, which you can borrow against or use to pay your premiums. For most people, term is best because it's much more affordable.

Under its LifeBridge program, MassMutual is offering term life policies with a $50,000 death benefit at no cost for families earning between $10,000 and $40,000.

Each policy has a 10-year term and must list the insured's children as the beneficiaries. If the insured parent or legal guardian dies during the 10-year period, the $50,000 benefit will be applied toward the children's education.

LifeBridge is available in all 50 states and the District of Columbia. For more information about this program, call MassMutual at (800) 272-2216.

Finally, the other big question with life insurance is how much to buy. I'd like to approach this question a different way by cautioning you:

  • Don't base your decision on a multiple of your income. You might have heard that you should have enough life insurance to cover five to six times your annual gross salary. That calculation is too simplistic. Take the time to look at your total financial situation, including your income. You should consider any other assets that would be available to your survivors, including investments and Social Security benefits.

  • Don't buy based on your lifetime earnings potential. You could end up buying too much insurance. You can find a good calculator at www.life-line.org.

  • Don't base the amount of life insurance you buy based on how much debt you have. If you die broke and no one co-signed for your debt a mortgage, car loan, student loan creditors can't legally go after your next of kin.