Your Money And Your Life Insurance

I was reviewing my corporate life insurance benefits recently when I suddenly realized that I was grossly underinsured. While the coverage is designed to help support my family if I die, I couldn't achieve that goal without buying additional insurance.

It turns out I'm not unusual. Women, whether they work in or outside the home, tend to underestimate their economic contribution to the family. So they don't make adequate provisions to offset the loss of their income, which could leave their families vulnerable to financial disaster should they die. In my case, since my husband earns about twice what I do, I figured all would be fine if he were properly insured. But the reality is, we depend on both our salaries to pay our mortgage and care for our two small children. Without my share, my husband would be in an economic bind. "Women often see their salary as the secondary income," says Diane Savage, a senior manager at benefits consultant Watson Wyatt Worldwide. "But it's not just fun money because a big part of it is used to support the lifestyle of the family."

CALCULATIONS. So you have to determine how much insurance you need and the most cost-effective way to purchase it. Many big companies provide some life insurance benefit, but the amount is usually insufficient. For example, my employer, The McGraw-Hill Companies, automatically insures me for one year's salary, up to $100,000. But many financial planners recommend that each wage earner in a dual-income couple be covered for five to seven times gross annual income. Other advisers suggest you determine the family's yearly financial needs, multiply the number by 20, and make sure the two spouses' combined coverage is adequate. Both methods assume you'll want life insurance for 20 years, or until your children reach adulthood. Web sites such as or can give you rough estimates of how much insurance you'll need.

Don't think that if you're a stay-at-home mother none of this applies to you. You need to determine what it would cost to replace the services you provide, such as child care, housekeeping, cooking, and transportation. Even if your spouse has substantial assets or earns enough to cover these expenses easily, you should be insured for at least $100,000 for immediate cash needs, says John Hixson, president of Financial Management Professionals, a financial planning firm in Lake Charles, La. But for those couples that do not have substantial assets or a high income, a policy of at least $250,000 is more appropriate.

Generally, you have three sources from which to purchase life insurance: your employer, your spouse's company, or private plans. Securing supplemental coverage from your own company is convenient, but you have more policy choices if you go outside. Also, because employers must insure all their workers regardless of health, their rates are often higher than those of private insurers. At McGraw-Hill, for example, I could increase my coverage fivefold for an extra $59.80 a month in 2001. But the premium is not locked in and could rise every year after that. Alternatively, I could buy a 20-year policy with the same amount of coverage from Prudential Insurance Co. for a fixed monthly premium of $52.92.

About 10% of companies offer some coverage to a spouse for free, while 66% let you buy it, according to William M. Mercer, a human resources consulting firm. But it's advisable to buy a policy that's not from your spouse's employer, whether you work outside the home or not. You need the portability of the insurance in case your spouse becomes unemployed or you get divorced. "The more you own independent of the marriage, the better," says Anna Rappaport, a principal with William M. Mercer. I'm glad it's corporate benefits season. Reviewing my benefits statement has motivated me to make sure I am properly insured from now on.

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