Assess your needs. Are you properly protected? Do you have adequate life, health, home, car, and disability coverage? If you’re not sure how much life insurance you need, start by calculating what replacement income your family would need in the event of your death, says Michelle Oliver, president of the Oliver Financial Group, an independent insurance and financial services agency. Some financial planners recommend $1 million if you have minor children, but work with a fee-only planner to determine your family’s unique needs. To get an idea, use an online life insurance calculator like the one at Bankrate.com. As for what type to buy, weigh factors like affordability, your goals, your income, and your age. Most finance experts recommend term as the better option for most people. A 35-year-old nonsmoking man in very good health would pay around $60 a month for a $1 million, 20-year term policy, according to MetLife.
Don’t overpay. For example, if you purchase your own health insurance, make sure you’re not paying more than you need to for the coverage you actually use. According to eHealthInsurance.com, which sells health insurance online in all 50 states, the average monthly premium of policies it sold was $392 for families and $167 for individuals. (Premiums in New York and Massachusetts are much higher than the average.) Also, consider your utilization patterns over the past year. If you’re self-employed, you may be able to deduct health insurance premiums paid for yourself and your dependents as an “above the line” (without itemizing) business expense on your federal tax returns. Even if you’re not self-employed, if your qualifying medical expenses exceed 7.5% of your adjusted gross income, you may qualify to deduct expenses above that threshold. Before buying, discuss with a tax professional the tax implications of any health plan you’re considering.
Review existing insurance policies. Michael Kay, certified financial planner and president of Financial Focus L.L.C., offers a few questions for thought. Have you experienced any life changes that need to be reflected in your coverage, such as marriage, death, or birth? Are your health insurance deductibles too low? Can you lower your premiums by covering some risk yourself? Or, are your deductibles too high? They are if you don’t have the cash flow or savings to cover them. Also, don’t assume that employer-paid life insurance coverage is adequate; it typically equals just one year’s salary, hardly enough to keep your family going long term. Plus, if you lose your job you lose that life insurance. It’s a good idea to purchase your own policy and consider the employer-paid policy supplemental.
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