Tailor-made Coverage

Here's how you can insure your life insurance is the proper fit for you

You might have a second home that could be sold in order to provide some capital. Moreover, your spouse might be expected to have a certain amount of income after your death. Once you have factored in everything, life insurance can make up any shortfall.

“The entire process can be complicated,” says Creuzot. “You have to project how much your invested capital will earn in the future-I often estimate 8% per year-and you need to build in a forecast for inflation, because a family that’s spending $25,000 now won’t be spending $25,000 next year or the year after. At present, I’m using a 4% inflation rate.”

By crunching the numbers as indicated, a financial professional should be able to help you compute how much life insurance you need. You can do your own projections, using a personal finance software package such as Quicken, or by going on the Internet (see chart listing Websites offering life insurance calculations).

Other factors may impact your decision as well. When Bishop Clarence E. McClendon, 33, who heads the Pentecostal Church of the Harvest in Los Angeles, bought life insurance, he wanted to protect his ministry as well as his wife, three children and other family members. “To accomplish all this, he bought two policies,” says Hicks, who is McClendon’s agent. “One policy will be paid into a trust, with the amount set to provide for his family members, assuming an 8% investment return.”

McClendon’s other insurance policy is assigned to the ministry. “It’s the type of ‘key person’ policy many organizations have for their chief executive,” says Hicks. “We bought enough coverage to be able to pay off the ministry’s debts and hire a replacement for the bishop in case of his death.” McClendon would not identify the size of his policies.

Dr. William A. Jackson, 65, a general practitioner in Detroit, bought $1 million worth of life insurance to benefit the Morehouse School of Medicine in Atlanta because he wanted the school to be able to continue educating physicians who will serve inner-city patients. “No estate plan is complete without charitable giving,” says Olin T. Wiley, an insurance agent and owner of Wiley & Associates, an insurance company in Atlanta that specializes in charitable estate planning. He helped Jackson acquire his coverage from the Hartford Life Insurance Co. “Buying life insurance from a top-quality company is a way to make a sizable donation some time in the future with a series of comparatively modest payments,” Wiley says.

Types of insurance
There are essentially two varieties of life insurance:

  • Term insurance. This is basic life insurance and the least expensive kind you can buy. However, as you grow older, term insurance costs will increase. You can buy, “annual renewable term,” with gradually escalating premiums, or “level premium term,” which locks in a rate for five, 10 or even 20 years. Recently, competition among providers has reduced the cost of term insurance, especially for level premium policies. The catch: after the level premiums are paid, you’ll have to take another medical exam
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