while you’re alive.
“Don’t go by rules of thumb, such as ‘buy six times your income in life insurance,’” advises John Sestina, a certified financial planner in Dublin, Ohio. “Instead, you should work through a careful analysis with a professional advisor. Determine what your family’s income needs will be, what sources of income will be available and how much life insurance will be necessary to provide the income that will be lacking.”
Once your insurance needs are set, you can decide what type of life insurance to buy. One option is “term” insurance, which is relatively inexpensive, It covers your needs over a set amount of time, but accrues no value over time. Your other choice, “cash value” or “permanent” insurance, provides a cash value account in addition to pure insurance.
“I decided against term insurance,” recalls Dr. Smith. “After the term is over, you have nothing to show for it. My policy has an investment account that enables my money to grow in mutual funds within the policy. I’ll be building wealth while I protect my family.”
“Many young professionals prefer cash value policies, especially variable life insurance,” says Creuzot. “They like to invest through insurance policies because they’re creditor-proof in some states, including Texas. The money builds up, without being taxed, and there are techniques to gain access to some of that money tax-free.”
You need liquid assets to pay estate taxes. The cheapest way to pay estate taxes is through life insurance. Then again, there are many financial planners who feel that it’s best to devote a minimal amount toward term insurance, and then invest whatever you save on variable life insurance to keep your money working. Ask your financial planner to spell out the details. (See “Buying Life Insurance,” October 1997.)
FUNERAL AND BURIAL ARRANGEMENTS. Does it make sense to pay for your funeral in advance? The main advantage of prepaying for funeral and burial arrangements is peace of mind, says Seattle financial planner Mark Spangler. Your survivors won’t have to fuss over arrangements during a time of stress. That’s especially true if your loved ones live far away from you and travel delays might complicate matters.
“Most funeral homes offer plans,” says Spangler. “You should ask among your friends and acquaintances for the names of reputable funeral homes, then request a few brochures.” And remember: buy the services you really want. Don’t let yourself get pressured into paying for unnecessary rituals.
Also consult with your attorney before making any commitment to a funeral home. That way you’ll be sure to describe any arrangements you make in the letter of instruction that accompanies your will. Otherwise, your executor may pay a second time for your funeral arrangements or a burial plot, unaware that you’ve already made arrangements.
Make sure your executor has all the details and that any deeds or contracts are in an accessible place. Don’t put your funeral and burial wishes in your will if the will is kept in a safe-deposit box. That box may not be opened until after the