(This article originally appeared in Singapore’s TheNewPaper last Saturday):
THOSE who depend on your income – from young children to elderly parents – also depend on you to have a life insurance policy.
Here’s what you need to know about buying one.
STICK WITH TERM INSURANCE
With the exception of a few situations (supporting a special-needs child or sibling, for estate tax purposes), you need only term.
As the name implies, you buy a policy for a set period – anything from a year to 20 or more. Should you die during that time, your beneficiary gets the death benefit on your policy.
If your goal is to protect children, choose a term policy that will give you coverage until your youngest is 23 or so. By that age, kids can support themselves.
BUY A GENEROUS POLICY
Specifically, one with a death benefit that equals 20 times your loved ones’ annual needs.
I know that sounds like a lot, but if a child or parent requires $50,000 a year for living expenses, that works out to a policy with a $1 million death benefit.
I suggest 20 times their annual expenses so that your survivors can invest the money conservatively and live off the interest rather than eat into the principal.
Make sure your policy is guaranteed renewable: As long as you pay on time, it can’t be cancelled.
NEVER MAKE A MINOR YOUR BENEFICIARY
No life insurance company will write a cheque to a juvenile.
If you name your child as the beneficiary, you should appoint a trustee (usually someone you know and trust) to receive the share of the insurance proceeds on your child’s behalf if he has not reached 21 years at the time of your death.
Whoever you have appointed as the trustee can use the funds to take care of your child according to the directives you’ve laid out.
CUT MONEY LINKS WITH EX
When a relationship ends, the money decisions typically centre around how to split up assets, but what gets overlooked is how to sever all financial connections formally.
Take these steps on your own to disentangle your finances, or get written verification that your ex has made the necessary changes.
- CREDIT CARDS
Any joint accounts should be paid in full and then closed.Make it a priority to get the balance paid off so you can permanently shut down the account.
- LOANS
You need to establish who is responsible for any outstanding debts (typically, this is part of a divorce agreement).When that has been decided, the crucial final step is to make sure that the loan agreement and the title are switched to the person who assumes responsibility.
For example, if your ex gets the house in the divorce, he is to refinance the mortgage in his name only and switch the title solely to his name.
Failure to do so can ruin your credit score if your ex falls behind on payments.
- BENEFICIARY DESIGNATIONS
Update the person you have listed as your beneficiary on every investment, retirement and savings account as well as your insurance policies.No matter what your will or trust says, if your ex is still listed, he could inherit your assets.