DECIDING THE BENEFICIARIES OF THE LIFE INSURANCE

Because of the constant changes in laws and the uncertainty some people feel about social security, you may want to calculate needs without taking government insurance into consideration. Of course, if all goes well, you will be that much ahead. However, to plan without relying on governmental promises you must be willing to stretch, if need be, to afford the larger premiums necessary for higher coverage. Don't forget to take into consideration other investments and possible inheritances which may make extra dollars available when the kids are ready for college, for example.
Some planners suggest a rough calculation, you should have life insurance coverage equivalent to five years expenses; that being the time thought necessary for a family to "get back on its feet." Unfortunately the determination is not as simple as that. If you are not mathematically inclined, you may need help in figuring future values. Inflation, interest compounding and time must all be figured to determine the amount of insurance that will cover your future needs in terms of future dollars. Your insurance agent or other professional can do the calculations for you once you have gathered the information. After all, that is the purpose of this book and especially the worksheets; to help you gather information for consultation with your professional at a reduced fee.

DESIGNATING BENEFICIARIES CAN BE TRICKY

In most cases the insured is the owner of the policy on his own life and as such reserves the right to appoint and change the beneficiary of the policy at any time up to his own death. For now, however, let us concentrate on who these beneficiaries might be. Most often the spouse is designated as beneficiary with children as contingent (alternate) beneficiaries. It is always wise to appoint more than one beneficiary in case the first appointed fails to survive the insured. It is also a good idea to name the beneficiary as well as adding a descriptive phrase.

The income for life option is similar to a normally purchased annuity. Here, in exchange for letting the insurance company have the use of the proceeds due you as beneficiary ( as a result of an insured's death) the company promises to provide you with an income for life. If you, as beneficiary, are in poor health this would, of course, be a foolish option. Even if you are relatively young and in excellent health you might be able to make better use of the insurance proceeds yourself. It may be possible to generate a better cash flow through sound investments than what the insurance company is offering. Before opting to receive proceeds under a "for life" plan, weigh the consequences carefully. Once proceeds begin to flow it is too late to make a change. The life income option may take many forms: Pure life income.

The pure life income option provides the highest monthly income. The company simply promises to pay a predetermined amount each month to the beneficiary until his death. Since there is no provision for "refunds" it is quite possible the insurance company can come out way ahead. If the proceeds are large the monthly income payments must be equally large in order to use up the proceeds during the beneficiary's lifetime. When the beneficiary dies before all the proceeds are paid the insurance company "pockets" the remainder. On the other hand, the beneficiary could come out ahead if he could mange to outlive the proceeds. In such an event the insurance company would have to dip into its own "pockets" to come up with the promised monthly payments. But don't bet on it; the payments are pre-determined to avoid just such a catastrophe for the insurer!

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