By Jean Chatzky with Arielle McGowen
August 07, 2009
There's nothing fun about the "d-words"—death and disability. In fact, just the mention of those words makes us want to turn our heads because we can't—and here's another d-word—deal. We don't want to tempt fate. So, instead of dealing, we neglect making out a will or medical directive and avoid getting the life and disability insurance we need.
But I have news for you. Thinking about negative life events won't make them happen. And preparing for the future won't tempt fate—it will protect you and your loved ones from fate. What's more, doing nothing can result in some pretty dire consequences.
So, in an effort to be fully prepared, here's a rundown of what you need to do today to make sure your family's future is secure:
A will. This is the document that specifies how you want your possessions distributed in the event of your death. It is also the only way to name guardians for minor children. An astounding three-fourths of Americans don't have wills. If you don't have a will and you and your spouse die at the same time, decisions on how your assets are distributed and, more importantly, who will raise your children, will most likely be left up to some judge who has never met you. That's not the way you want things to go.
A living will and healthcare proxy. A living will is a document that tells doctors and hospitals what kind of action you want taken in a dire situation. It essentially answers the question, "Do you want life support?" A healthcare proxy is a document that gives the person you choose the authority to make medical decisions on your behalf. This person is critical because healthcare issues aren't always black and white. In a pinch, doctors and hospitals will rely on the word of your proxy over your living will.
Life and disability insurance. Life insurance pays a predetermined amount to your beneficiary when you die. If you have others depending on your income or services (like taking care of the kids or an elderly parent), you need life insurance, too. Anyone who needs life insurance also needs disability insurance. This policy will pay you if you're unable to work. You can usually get short-term disability insurance through your employer. But long-term coverage is the more pressing need. About one-third of people ages 30 to 65 will be forced out of work for three months or more by a disability, according to the Health Insurance Association of America.
In addition, if you're in your 50s and have assets between $300,000 and $2 million, long-term care insurance probably makes sense for you. These policies cover nursing home and assisted living costs, but they are costly. For more information on long-term care insurance, go to www.aarp.org.
Ten Questions for Your Money Group
Together you and your Money Group members can help each other answer—and stop avoiding—these wrenching but vital questions about the future.
Do you have an up-to-date will? If not, why not? ( Jean's take: When I drew up my first will when my son Jake was a baby, like many people I was reluctant. I didn't want to think about anything happening to me because that might imply I wouldn't be around to raise this child. And what parent wants to entertain thoughts like that? But if something terrible did happen to you and your spouse, there could be a long legal battle over who will take care of your children—or worse, no battle and at all and the state will decide what happens to your kids.)
What do you want to happen to your possessions when you die? Would you like any of your assets to go to charity? ( Jean's Take: A will is the only way to make your wishes clear.)
If you have stepchildren, do you want them to inherit your assets?
If the situation arose, would you want extraordinary measures such as life support and feeding tubes to keep you alive? What about pain management and hospice care?
Who would you trust to make medical decision on your behalf if you are incapacitated? ( Jean's take: Think carefully here. If you're married or have a partner, that's naturally the first person you will choose. But be sure he or she understands exactly what you want. A very close loved one, in the throes of a critical situation, may have a hard time carrying out a do not resuscitate order. )
Would you have enough money if you had an accident or serious illness and couldn't work?
Does long-term care insurance make sense for you or your spouse?
If you died tomorrow, would your family have enough money to get by? ( Jean's take: Don't jump to the conclusion that because you are a stay-at-home mom you don't need life insurance. The services you provide have value and would cost a lot to replace.)
Who can help you make some of these important decisions? Your spouse? An estate planning expert? A trusted family member?
Three Tasks You Can Do This Month
Before the paperwork actually gets done, you have a lot of big decisions to make. These three tasks will help you get started with the decision-making and the details.
Decide who will be guardians for your children and make your will. Choosing a guardian is an enormous decision and is often the reason people don't get their wills written. Make a short list of possible candidates then use these questions to make the job easier. I recommend naming a single person, not a couple who could possible split up in the future.
Does this person have time to take care of my children?
Does he or she share my values about what's important in life?
Is this person young enough and in good enough health?
Does this person have the resources necessary? (Or, will I be leaving enough life insurance and other assets so that money is not an issue?)
Is he or she willing to do it?
Remember, it's not only parents that need wills. Anyone who wants to know what will happen to their money, possessions and even their debts needs a will. If you don't have a will, a judge will make those decisions based on the rules in your state.
How much you'll pay for a will depends on how complicated it is. Many attorneys will draw up a basic plan, for $500 to $1,000. Or you can go the do-it-yourself route with one of the many will-writing software programs available for around $60. If you decide to use software, find a lawyer who will, for $100 or so, take a look at your final product before you sign it. To find a list of lawyers in your area who specialize in estate planning, go to www.findlaw.com. Or better yet, ask friends and family members who they've used and trust.
Figure out your living will and healthcare proxy. Use the Money Group questions to help you think about whether you want life support and other extreme measures and who you want to make medical decisions on your behalf if you are incapacitated. A lawyer can help you draw up the proper paperwork for both documents. Or, you can find the forms via the website for your state's bar association. Fill out the forms and sign them in front of two disinterested witnesses. (Note: If you split your time between two or more states, it's a good idea to fill out the forms for each state—just make sure your wishes are consistent.) Another good source is "The Five Wishes Living Will" at www.agingwithdignity.org. Check to see if it's accepted in your state.
Learn more about life and disability insurance. Life insurance basically comes in two forms—term and cash value (also known as whole life universal life and variable life). Term insurance provides a death benefit if you die within a specified period of time, which could be anywhere from one year to 30 years. You pay premiums every year to keep the policy in place. If you don't die before the term is up, the policy expires. Term insurance is the less costly option and is often the only way people can afford to buy as much insurance as they need.
Cash-value insurance combines the death benefit with an investment account. The premiums are much higher but the policy builds value over time and it doesn't expire. When you die, it pays your beneficiaries the predetermined death benefit plus any cash value your account has accrued.
If you decide on term insurance there are several Internet search engines that make the job easy. Cash value insurance should be purchased through a trusted agent. Always check to make sure the insurance carrier you're buying from is rated "A" or better by the rating service A.M. Best (www.ambest.com).
For disability insurance, you want coverage that provides about 60 percent of your total salary and benefits and you want to be sure the policy lasts until you are age 65 or 67, when Social Security will kick in at an acceptable rate. You also want a policy that will adjust for inflation and cover you for your specific occupation, not just any kind of work. Your life insurance agent can help you choose the right disability coverage as well.
Calculate How Much Life Insurance You Need
So who really needs life insurance? Anyone who has others depending on her or his income or services for support needs life insurance. If you stay home and take care of your children or an elderly parent, the services you provide have value, and you should think about buying a life insurance policy.
Premiums vary widely, but in general they go up with the amount of cash-value coverage you buy and down with the amount of term insurance you buy. Resources