How Much Life Insurance Do You Really Need?

Some people equate life insurance with tragedy and death. In truth, life insurance is for the living. Without it, the sudden demise of a key breadwinner could leave a family stranded without the resources to maintain their lifestyle—or even retain their home.

Not so long ago, professionals recommended that families carry a life insurance policy with a death benefit of 10 times their annual household income. Today, however, in light of rising house prices in many parts of the country, spiraling college costs and low interest rates most advisors now recommend up to 20 times your household income.

Unfortunately, most American families are underinsured. The gap between what households have and what they need is nearly $320,000, according to LIMRA’s study Closing the Life Insurance Gap, 2015.

If you’d like to get a working idea of how much life insurance you may need (or how much more you may need), you can use our quick Life Insurance Needs Calculator.

A Cornerstone of Your Financial Plan

Life insurance is a cornerstone of your financial plan, for these reasons.

  1. It provides income replacement. For most people, their most valuable economic asset is their ability to earn a living. If you have dependents, then you need to consider what would happen to them if they could no longer rely on your income. A life insurance policy can also help supplement retirement income, which can be especially useful if the benefits of your surviving spouse or domestic partner will be reduced after your death.
  2. It covers outstanding debts and long-term obligations. Without life insurance, your loved ones must shoulder burial costs, credit card debts, and medical expenses not covered by health insurance using out-of-pocket funds. The policy’s death benefit might also be used to pay off a mortgage, supplement retirement savings, or fund college tuition.
  3. It can be used for estate planning. The proceeds of a life insurance policy can be earmarked to pay estate taxes so that your heirs will not have to liquidate other assets to do so.
  4. You can use it to support a charity of your choice. If you have a favorite charity, you can designate some or all of the proceeds from your life insurance to go to this organization.

Remember an agent or advisor can help you figure out your life insurance needs and find something that works within your budget.

New ACA Rules After Humana Leaves Marketplaces

On Wednesday, the Trump Administration proposed changes to the ACA individual market in order to “stabilize the individual and small group markets.” This comes hours after Humana announced they would drop out of the insurance marketplaces in 2018, and Aetna and Anthem may not also. Furthermore, Aetna CEO Mark Bertolini stated the exchanges have entered a “death spiral,” where high premiums force out the healthiest from the marketplace, in turn – in order to cover the costs of an older and less healthy base of people – the insurance companies increase premiums. And the cycle continues.

“Humana’s exit is the latest in a series of developments that calls into question the long-term viability of the ACA Marketplaces, said Benjamin Conley, Partner, Seyfarth Shaw. Fewer insurers equals less competition, equals higher premiums. To the extent politicians in D.C. are interested in preventing a mass exodus from the remaining insurers, they need to take quick, decisive steps to address the uncertainty regarding the future of the ACA. Humana’s exit should have limited impact on large employers, but small employers who sought coverage through the small business Marketplaces may find fewer options available going forward.”

The Trump Administration’s changes focus on tightening the enrollment process to make it harder for individuals to move in and out of healthcare coverage, which insurers claim has added to the “death spiral.” The changes include allowing insurers to collect unpaid premiums when an enrollee signs up with an insurance company they own money to again, lowering the guaranteed coverage offered by some silver level plans, give states oversight of doctor and hospital networks, shortening the open enrollment period to November 1 through December 15 to match that of employer-sponsored plans, and placing stronger emphasis on verifying that anyone who enrolls outside of an open enrollment period is eligible for a “special enrollment period.”
Also, yesterday the IRS announced that as a result of President Trump’s executive order reducing the “financial burden on a state, company or individual” will accept tax filings that do not include the individual’s coverage status, making it easier for individuals to go without coverage and avoid a penalty. While this may seem minor, it is a signal that the IRS is moving away from enforcement.

Insurers and Republican legislators think these changes are a good start.

“If we don’t take more steps like that, having an Obamacare subsidy will be like having a bus ticket in a town where no buses run because there will be zero choices to buy,” Senate health committee chairman Senator Lamar Alexander said to reporters.

However, there are many critics of the proposal as well. Removing some of the guaranteed issues of silver plans will cut premiums but at the cost of increased out-of-pocket costs. Moreover, making it harder for people to enroll, coupled with the weakening of the individual mandate – which was intended to keep healthy people in the marketplace – could cause premiums to increase further. By making it more difficult for healthy people to enter the market, they will not be able to contribute their premiums, so we would be right back where we started.

What the overall impact will remain to be seen, as will which of these changes – if any – will make it to the final replacement bill. As the administration begins their changes to the ACA, the best way to ensure that you and your plan are compliant is to be prepared.

Published by Healthcare Reform Magazine.

How Much Life Insurance Do You Really Need?

Some people equate life insurance with tragedy and death. In truth, life insurance is for the living. Without it, the sudden demise of a key breadwinner could leave a family stranded without the resources to maintain their lifestyle—or even retain their home.

Not so long ago, professionals recommended that families carry a life insurance policy with a death benefit of 10 times their annual household income. Today, however, in light of rising house prices in many parts of the country, spiraling college costs and low interest rates most advisors now recommend up to 20 times your household income.

Unfortunately, most American families are underinsured. The gap between what households have and what they need is nearly $320,000, according to LIMRA’s study Closing the Life Insurance Gap, 2015.

If you’d like to get a working idea of how much life insurance you may need (or how much more you may need), you can use our quick Life Insurance Needs Calculator.

A Cornerstone of Your Financial Plan

Life insurance is a cornerstone of your financial plan, for these reasons.

  1. It provides income replacement. For most people, their most valuable economic asset is their ability to earn a living. If you have dependents, then you need to consider what would happen to them if they could no longer rely on your income. A life insurance policy can also help supplement retirement income, which can be especially useful if the benefits of your surviving spouse or domestic partner will be reduced after your death.
  2. It covers outstanding debts and long-term obligations. Without life insurance, your loved ones must shoulder burial costs, credit card debts, and medical expenses not covered by health insurance using out-of-pocket funds. The policy’s death benefit might also be used to pay off a mortgage, supplement retirement savings, or fund college tuition.
  3. It can be used for estate planning. The proceeds of a life insurance policy can be earmarked to pay estate taxes so that your heirs will not have to liquidate other assets to do so.
  4. You can use it to support a charity of your choice. If you have a favorite charity, you can designate some or all of the proceeds from your life insurance to go to this organization.

Remember an agent or advisor can help you figure out your life insurance needs and find something that works within your budget.