Life Insurance

 Life insurance can be one of the most important purchases you’ll ever make.   In the event of a tragedy, life insurance benefits can help pay the bills, continue a family business, pay for future needs like your children’s education, protect your spouse’s retirement plans, and more.

Dig in here to gain a better understanding of life insurance and its role within a sound financial plan, and answer many of your questions. You’ll find information and interactive tools to help you get a sense of how much and what kind to buy, plus information about how different life events, such as having children or buying a home, can affect your insurance needs. When you're ready to purchase, Bayside Life will guide you through the process and shop for the best coverage with over 50 insurers we represent. 

Here are some topics to help you deepen your understanding of how life insurance works, and how you can make the most of it.  

Who Needs Life Insurance? 

If someone will suffer financially when you die, chances are you need life insurance.  Life insurance provides cash to your family after your death. This cash replaces your income and can help your family meet many important financial needs like funeral costs, daily living expenses and college funding. What’s more, there is no federal income tax on life insurance benefits. Most Americans need life insurance. To figure out if you need life insurance, you need to think through the worst-case scenario:

• If you died tomorrow, how would your loved ones fare financially?

• Would they have the money to pay for your final expenses (e.g., funeral costs, medical bills, taxes, debts, lawyers’ fees, etc.)?

• Would they be able to meet ongoing living expenses like the rent or mortgage, food, clothing, transportation costs, healthcare, etc?

• What about long-range financial goals?

• Without your contribution to the household, would your surviving spouse be able to save enough money to put the kids through college or retire comfortably?

The truth is, it’s always a struggle when you lose someone you love. But your emotional struggles don’t need to be compounded by financial difficulties. Life insurance helps make sure that the people you care about will be provided for financially, even if you’re not there to care for them yourself. To help you understand how life insurance might apply to your particular situation, we’ve outlined a number of different scenarios below. So whether you’re young or old, married or single, have children or don’t, take a moment to consider how life insurance might fit into your financial plans.

You’re Married

When you’re married, you share everything with your significant other, including your financial obligations. Many people mistakenly believe that they don’t need to think about life insurance until they have children. Not true. What it one of you were to die tomorrow? Even with the surviving spouse’s income, would that person be able to pay off debts like credit-card balances and car loans, let alone cover the monthly rent and utility bills. If you’re planning to have children, you’ll want to buy life insurance right away and not wait until the mom-to-be is pregnant. Some companies won’t issue a policy to a woman during her pregnancy. Since health complications sometimes arise, they’ll want to wait until after the baby is born to issue the policy. Buying insurance before a baby is on the way helps avoid this potential problem.

You’re Married With Kids

Most families depend on two incomes to make ends meet. If you died suddenly, could your family maintain their standard of living on your spouse’s income alone? Probably not. Life insurance makes sure that your plans for the future don’t die when you do.

You’re a Single Parent

As a single parent, you’re the caregiver, breadwinner, cook, chauffeur, and so much more. Yet nearly four in ten single parents have no life insurance whatsoever, and many with coverage say they need more than they have. With so much responsibility resting on your shoulders, you need to make doubly sure that you have enough life insurance to safeguard your children’s financial future. 

You’re a Stay-At-Home Parent

Just because you don’t earn a salary doesn’t mean you don’t make a financial contribution to your family. Childcare, transportation, cleaning, cooking and other household activities are all important tasks, the replacement value of which is often severely underestimated. Surveys have estimated the value of these services at over $40,000 per year. Could your spouse afford to pay someone for these services? With life insurance, your family can afford to make the choice that best preserves their quality of life.

You Have Grown Children

As the years go by, you may feel your need for life insurance has passed. But just because the kids are through college and the mortgage is paid off doesn’t necessarily mean that Social Security and your savings will take care of whatever lies ahead. If you died today, your spouse will still be faced with daily living expenses. What if your spouse outlives you by 10, or even 30 years, which is certainly possible today. Would your financial plan, without life insurance, enable your spouse to maintain the lifestyle you worked so hard to achieve? And would you be able to pass on something to your children or grandchildren? 

You’re Retired

Did you know that depending on the size of your estate, your heirs could be hit with a large estate tax payment after you die (45% of your estate). The proceeds of a life insurance policy are payable immediately, allowing heirs to take care of estate taxes, funeral costs, and other debts without having to hastily liquidate other assets, often at a fraction of their true value. And life insurance proceeds are generally income tax free and can be arranged to avoid probate. Finally, if your insurance program is properly structured, the proceeds from your life insurance policy won’t add to your estate tax liability.

You’re a Small Business Owner

Besides taking care of your family, life insurance can also protect your business. What would happen to your business if you, one of your fellow owners, or perhaps a key employee, died tomorrow? Life insurance can help in a number of ways. For instance, a life insurance policy can be structured to fund a “buy-sell” agreement. This would ensure that the remaining business owners have the funds to buy the company interests of a deceased owner at a previously agreed upon price. That way, the owners get the business and the family gets the money. To protect a business in case of the death of a key employee, “key person insurance,” payable to the company, provides the owners with the financial flexibility needed to either hire a replacement or work out an alternative arrangement.

You’re Single

Most single people don’t need life insurance because no one depends on them financially. But there are exceptions. For instance, some single people provide financial support for aging parents or siblings. Others may be carrying significant debt that they wouldn’t want to pass on to family members who survive them. Insurability is another reason to consider life insurance when you’re single. If you’re young, healthy and have a good family health history, your insurability is at its peak and you’ll be rewarded with the best rates on life insurance. If you anticipate a need for life insurance down the road (e.g., you’re the marrying type) and you can fit the premiums into your budget, it might make sense to lock in coverage while you’re young and single. Doing so can eliminate the worry of having to qualify for coverage when you’re older and maybe not as healthy as you once were.

There are countless stories about how life insurance has made all the difference in the world for survivors of those thoughtful enough to put coverage in place.  

How Much Life Insurance Do I Need? 

The answer isn’t really how much life insurance you need, it’s how much money your family will need after you’re gone. 

Ask yourself:

• How much money will my family need after my death to meet immediate expenses, like funeral expenses and debts?

• How much money will my family need to maintain their standard of living over the long run?

Life insurance proceeds can help pay immediate expenses including uncovered medical costs, funeral expenses, final estate settlement costs, taxes and other lump-sum obligations such as outstanding debts and mortgage balances. They can also help your family cover future financial obligations like everyday living expenses, money for college or your spouse’s retirement, and so much more. 

But how do you know if you need $100,000, $500,000, $1 million or more? The most common way to determine your life insurance needs is by conducting what’s called a Capital Needs Analysis. 

Here’s how it works. Start by evaluating your family’s needs. Gather all of your personal financial information and estimate what your each of your family members would need to meet current and future financial obligations. Then tally up all of the resources that your surviving family members could draw upon to support themselves. The difference between their needs and the resources in place to meet those needs is your need for additional life insurance (see diagram below). 

This may look simple enough, but calculating one’s life insurance needs can actually get pretty complicated. To make it easy for you to get a general sense of your needs, check out our life insurance needs calculator. It’ll walk you through the process and provide you with an estimate of your insurance needs in a matter of minutes. 

But remember, our calculator (or anyone else’s for that matter) is no substitute for the guidance and assistance you’ll get by meeting with a qualified insurance agent or other financial professional. So if you’re serious about protecting your family’s future, contact Paul for a personal needs analysis. 

There are many kinds of life insurance,

but they generally fall into two categories: term insurance and permanent insurance. 

Term insurance, the most affordable type of insurance when initially purchased, is designed to meet temporary needs. It provides protection for a specific period of time (the “term”) and generally pays a benefit only if you die during the term. This type of insurance often makes sense when you have a need for coverage that will disappear at a specific point in time. For instance, you may decide that you only need coverage until your children graduate from college or a particular debt is paid off, such as your mortgage.

Permanent insurance  by contrast provides lifelong protection. As long as you pay the premiums, and no loans, withdrawals or surrenders are taken, the full face amount will be paid. Because it is designed to last a lifetime, permanent life insurance accumulates cash value and is priced for you to keep over a long period of time.

It’s impossible to say which type of life insurance is better because the kind of coverage that’s right for you depends on your unique circumstances and financial goals. Often, a combination of term and permanent insurance is the right solution. 

Explore the other parts of this section to learn more about term and permanent insurance and the pros and cons of each. Also, try our interactive product selector. It walks you through the questions you need to consider to determine the kind of life insurance that’s right for you.

But remember, the best way to figure out the amount and type of life insurance that makes sense for your particular situation is to meet with a qualified insurance professional like Paul. 

Life Insurance for Businesses

As a small business owner you are responsible not only for the welfare of yourself and your family but for many others as well, including partners, employees and customers. Whether you run your business out of your home or from an office, factory or warehouse, a well-conceived insurance and benefits program is essential. 

It can help protect your family and your business if you die or become disabled. It can help you bridge an important gap if one of your key employees dies or leaves the business. It can assist you in attracting and retaining the best talent. And depending on the size of your company, it can even offer an innovative way for you to compensate your most valuable team members. 

This section discusses the different insurance products available to small business owners and the benefits they offer. You’ll learn about buy-sell agreements, key person insurance, employee benefits and executive compensation. Explore this section to learn more about how insurance can protect your business while giving you a competitive edge. 

ne of the first things any business owner needs to consider is how to protect against events that may threaten the future of the business, like the death or disability of a proprietor, partner or key employee. 

Individual Life Insurance

Let’s start with the worst-case scenario, the death of one of the business owners. What will happen to your business if you die? Many small business owners take out loans to help grow their businesses, and often secure these loans with personal assets. If you have business loans and were to pass away before they were paid off, you might think your family could sell or liquidate the business to cover the debts and provide financial security for them. 

In reality, this rarely happens. When the family is forced to sell the business quickly, they may have to sell at a discount or during market conditions that make the business less attractive. In other cases, the business may be worth very little without the proprietor or partner. Individual life insurance can protect your family by providing funds to cover debts, ongoing living expenses, and future plans in the event that something happens to you.

Buy-Sell Agreements

Life insurance also can be structured to fund a “buy-sell” agreement. This is an agreement among owners to buy a deceased owner’s share of the business at a previously agreed upon price in the event of death, disability or retirement. 

Why are these agreements so important? You might think that if you die, your family could maintain their income by running the business themselves or by hiring someone to handle the day-to-day management. The fact is, your loved ones may not have the skills or the desire for the job, and your co-owners may not welcome the idea of an unintended partner. With a properly structured and funded buy-sell agreement, your business partners won’t have to scramble to come up with the money to buy out your share of the business and you’ll be guaranteed that your survivors will be compensated fairly and promptly. 

Buy-sell agreements are typically funded by life insurance policies purchased on the lives of each of the business owners. The amount is usually specified in a contract created with the help of an attorney. You can enter into a buy-sell agreement at any time, but it often makes sense to do so when a business is formed or when new owners are brought into the business. Because business values can fluctuate, it’s important to review the contract with your accountant at least once per year or to include a calculation method in the agreement. Also be sure the insurance coverage funding the agreement is up to date. 

Though not as common as insuring against death, business owners can also insure against the risk of becoming disabled and unable to work. In this case, disability income buyout insurance would fund the buy-sell agreement, allowing the disabled owners to be bought out, typically after a one-year waiting period.

Key Person Insurance

Key person insurance is another essential component of a smart business continuation plan. Key person insurance is life or disability insurance purchased by the business on the life of such an employee and payable to the business. When a “key person” dies or becomes disabled, insurance can help make up for lost sales or earnings or cover the cost of finding or training a replacement.