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IMS Tax Preparation Guide 23 Insure your financial obligations By Robert W. MacDonald Copley News Service - Most Americans agree that life in­ surance is a necessity and practically all advice on family money manage­ ment includes it. Life insurance is important. It pro­ vides protection by creating an estate to meet the beneficiaries' financial needs. But for years, the life insurance in­ dustry has used guilt, fear, high pressure and industry jargon to get consumers to buy products the in­ surance industry wants to sell, rather than what consumers may need or want. So, before buying insurance, you should list specific needs and obliga­ tions. Start with replacing lost income, keeping up mortgage payments, pay­ ing off debts or taxes, covering school costs, etc. Don;t leave anything off the list for which you are or might be responsible. Doing this homework before you sit down with an insurance agent will make it much easier for him to determine with you how much in­ surance you need. Following are some specific rules to make buying life insurance easier. They also could save you thousands of dollars. •Don't buy insurance if you don't need it. Ask yourself this question: "If I die, will anyone suffer an ecomonic loss?" If the answer is no, you don't need life insurance and you shouldn't buy it. •Don't buy more life insurance than you need. Life insurance companies have no limit on how much insurance they will make available for agents to sell. You've heard the saying, "I'm worth more dead than alive." If true, that person has been sold too much in­ surance. When deciding how much life in­ surance to buy, take into account your family situation. A person with children 4 and 2 probably needs more insurance than a person with children 19 and 21. Take into consideration all of your assets such as group insurance at work, Social Security and other in­ vestments. •Buy the poicy that's right for you -- not for the insurance company. Whole-life insurance -- the type of policy that provides death protection and a cash savings buildup -- is the most profitable product sold by the life insurance industry. Whole-life in­ surance, however, may be the worst type of policy you can buy. This type of policy often-overcharges for the in­ surance it provides and offers a return on the savings portion of the policy well below the return on passbook savings accounts. For the majority of people, especial­ ly young families who need insurance most, the best type of policy probably is pure term insurance. A term policy is one that provides death benefits only and costs about 10 to 15 percent of the whole-life premium. If you buy term in­ surance, make sure you have the right to renew the policy until 70 or 75. Another alternative is universal life. This type of policy gives the flexibility of paying low term-type rates when you are younger, and then, as your income goes up, accumulates funds in the policy at rates of interest competitive with money markets. While the degree of flexibility and op­ tions may vary from one kind of policy to another, you can find policies that adapt to changing needs over a period of time. Look for options like waiver of premium, which will keep the policy in force in the event of disability. Some policies also allow adding coverage for a spouse or children. Features such as accidental death benefit, which pays an extra amount if death is by accident and guaranteed in­ surability, which gives the right, regardless of health, to buy more in­ surance in the future, are also available. •Make the person selling you the in­ surance speak English. Many agents are trained to make the purchase of life insurance sound mystic and mysterious. The object of this is to make you feel intimidated so you won't ask questions. But you should ask questions. Demand to know the exact cost of the benefit you are buying. Make the agent show you exactly what return you will get on any savings portion. Require the agent to disclose all expenses, charges and fees and how they are collected. If the agent won't provide this in­ formation in a manner you understand, look for another agent. •Shop around. The vast majority of people buy life insurance from the first company or agent they meet. There is no doubt that talking to even one agent, let alone two or three, can be a traumatic ex­ perience. But there are differences bet­ ween the insurance products various companies are offering. Shopping around might cause you some anxiety, but it also could save you lots of money. •Make sure any policy you buy has at least a 20-day "free look." This allows you time to examine the policy to make sure it's exactly what you were promised. If the policy is returned during the free-look period, all money paid will be returned.* Tele-Tax is a recorded tax information tele­ phone system to answer your tax questions. The local number to call and a list of tax topics is in your tax package. \ f sO ~ f> J 4 V Remember, when you're buying life insurance, you're buying a consumer product designed to protect against an economic loss. Buying life insurance is not, despite what insurance companies might want you to believe, a religious experience or a test of American patriotism. Life insurance is just life insurance. Being a prudent, deman­ ding buyer will enable you to get the coverage you need at a reasonable price. Editor's Note: MacDonald is presi­ dent and chief executive officer of the Minneapolis-based ITT Life Insurance Corporation. Tired of Paying High Taxes? See the Professional About TAX FREE MONEY! •IRA's •Bond Funds •And Other Tex Shelters CALL BILL JOHNSON AT 185-3000 McHenry County Insurance Agency 1209N.GREEN ST. 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