Purchasing life insurance can protect you against losses you cannot afford. By paying premiums to an insurance company, you transfer the risk of loss from you to the insurance company. The insurance company pools all premiums into a large fund, invests the monies, and withdraws money from the fund to pay for any claims.
The need for life insurance is not the same for everyone. It also varies according to a person's financial plan and stage of life.
How much life insurance do you need? Consider this:
- You should have enough life insurance or resources to be able to cover funeral costs and related expenses for family members. This may require from $6,000 to $10,000 per person.
- One rule of thumb for determining life insurance needs is to plan for 10 times the salary of the family breadwinner in life insurance coverage. A ten percent annual return on that money invested by the surviving spouse should provide a full salary replacement.
- Another method of determining life insurance needs is to total up projected expenses, including
- Salary replacement and inflation for the years required
- Funeral costs and related expenses
- Mortgage
- Children's education
- Cost of childcare and housekeeping expenses
- This could be reduced by savings, spouse's income, Social Security benefit and other insurance.
- Life insurance premiums are less expensive if purchased while a person is younger. It may also be easier to meet underwriting requirements due to good health at a younger age.
- Beneficiaries do not have to pay taxes on life insurance pay-outs, subject to the size of the estate.
Types of Life Insurance
Term Insurance provides a benefit at the death of the insured if it is within the term for which coverage was purchased. Premiums increase and coverages reduce as a person ages. DMBA Group Term Life (GTL), DMBA Supplemental Group Term Life (SGTL), TIAA Renewable Term and TIAA Decreasing Term are examples of term insurance. DMBA life insurance coverages reduce as follows:
| Active Employee: | GTL | SGTL |
|---|---|---|
| Age 60 | No Redutcion | Reduces to 75% |
| Age 65 | Reduces to 65% | Reduces to 50% |
| Age 70 | Reduces to 45% | Reduces to 35% |
| Age 75 | Reduces to 35% | Reduces to 25% |
| At retirement: | $10,000 | $5,000 |
Cash Value Insurance provides insurance coverage throughout a person's lifetime and builds a tax-deferred cash value with a savings that can be borrowed against. These policies are portable, and premiums typically do not fluctuate. DMBA Universal Life, TIAA Whole Life and TIAA Twenty-Pay Life fall into this category.
How DMBA Life Insurance coordinates with the DMBA Master Retirement Plan (MRP) to provide benefits for surviving spouses
DMBA term life coverage is intended to provide financial protection until retirement. It is not intended to build an estate after retirement. The BYU Master Retirement Plan (MRP) benefit may be paid on a monthly basis to a surviving spouse after the deceased employee would have reached age 55. If an employee dies as an active employee, the surviving spouse Master Retirement Plan benefit is a 50% benefit. DMBA Life Insurance and the DMBA Master Retirement Plan coordinate as follows:
If a participant is deceased as an active employee the surviving spouse will receive
| GTL | SGTL | MRP |
|---|---|---|
| Full Benefit* | Full Benefit* | 50% Benefit |
If the participant is deceased as a retiree the surviving spouse will receive
| GTL | SGTL | MRP |
|---|---|---|
| $10,000 | $5,000 | Full Benefit** |
* As determined by age and coverage
** As determined by option selected at retirement
NOTE: It's important to keep your beneficiary form updated with DMBA.