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Answers to your life insurance questions

Thinking about life insurance can be overwhelming. There are many coverage options, and it’s never easy to contemplate tragic events. But if you or a family member passed away, life insurance could help your loved ones pay bills, cover funeral costs, settle outstanding debts and maintain their financial footing. Above all, the right life insurance policy provides peace of mind for you and your family. NEA Member Benefits provides answers to common life insurance questions to help you determine your needs and figure out how to meet them.

Do I need life insurance?

If someone depends on you financially, the answer is yes. If you are unmarried with no dependents and little or no debt, you might not need a life insurance policy right now — but you might need one later if your circumstances change.

When should I get life insurance?

Consider purchasing a life insurance policy — or re-evaluating your current policy — when you:

  • Get married. Couples often depend on two incomes to pay the bills and cover daily living expenses, so the sudden loss of one income could put a significant financial strain on the surviving spouse.
  • Become a parent. Life insurance can help a widowed parent provide for children’s daily expenses, college education and more. It is typically a must for single parents whose children rely on them for everything.
  • Buy a home. Life insurance can help reduce or eliminate the burden of paying off a mortgage if one income isn’t enough to cover the costs of owning a home.
  • Change jobs. A new job often comes with a higher salary — and a more expensive lifestyle. Updating a life insurance policy can help ensure that a family’s lifestyle can be maintained if the policyholder passes away.
  • Retire or plan for retirement. Life insurance can help retirees avoid drastic lifestyle changes if their partner passes away.

What type of life insurance do I need?

There are two primary types of life insurance, each with many variations. Determining the right kind of life insurance for you and your family before purchasing a policy is crucial.

Term life insurance

This type of life insurance pays benefits only if you pass away while the policy is in effect — not if you live past the policy term. You will pay a fixed premium toward a set payoff amount over the policy period. Term policies typically offer the greatest amount of coverage for the lowest premium, making them a good choice for younger families with smaller budgets. There are two options for term insurance policies:

  • Level term policies have a death benefit that remains the same for the duration of the policy.
  • Decreasing term policies have a death benefit that steadily decreases over the course of the policy term.

Permanent cash-value life insurance

This type of life insurance does not end after a specified period. Permanent life insurance policies are typically 10 times more expensive than term insurance policies for the same payout, but they offer several benefits — including potential tax advantages, stable premiums and guaranteed coverage no matter how long you live. There are three major types of permanent insurance:

  • Traditional whole life policies have a fixed premium and death benefit throughout the duration of the policy, which means that premiums may be higher in earlier years to help offset higher costs later in life.
  • Universal life policies are typically more flexible than traditional policies. A portion of each premium payment — the amount left after deducting the cost of the life insurance — accumulates and earns interest. You can sometimes use the cash value of the account to reduce your premium.
  • Variable life policies carry the most risk. Insurance benefits are combined with a savings account that can be invested in stocks, bonds and mutual funds. As is the case with any investment, your policy value and death benefit can increase or decrease based on the market’s performance, which is why it may be best to look for a policy that guarantees your life benefit will not fall below a certain amount.

How much life insurance do I need?

Even if you are an MTA member who receives life insurance from your school district, you may not have sufficient coverage. Some financial experts recommend carrying 10 to 12 times your income in life insurance.1 To estimate your optimal coverage amount, calculate what your family members would need to meet immediate, ongoing and future financial obligations while maintaining their current standard of living.

  • Immediate expenses include funeral costs, medical bills and credit card payments.
  • Ongoing expenses include food, housing, transportation, utilities, health care and other basic needs.
  • Future expenses include college for your children or the needs your spouse will have in retirement.

Once you have an estimate of your financial obligations, subtract the sum of additional financial resources available to your family members, such as additional income sources, investment accounts and accumulated savings.Bring this estimate with you when you meet with an insurance professional. He or she can work with you to determine the type and amount of life insurance you would need to support your loved ones.

The potential downside of not having enough life insurance is significant. If you have children, it can cost an estimated $233,610 to raise a child to age 18. That number does not include the cost to contribute to a child’s education.3 Make sure you and your family are prepared in the event of a tragedy. You can start by learning about a range of affordable insurance options available to MTA members.

1. Forbes. 7 Myths About Life Insurance, 6/06/2014.
2. Life Happens. How Much Life Insurance Do I Need?
3. Life Happens. Do I Need Life Insurance?
NEA Life Insurance coverage is issued by The Prudential Insurance Company of America, Newark, N.J.

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