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THE BASICS OF LIFE INSURANCE
How much life insurance do you really need? Before answering this
question, remember that you'll be looking to your life insurance to
provide liquidity for the following:
-
Pay off your debts, such as mortgages and equity loans, auto
loans, student loans, credit cards, and other personal loans.
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Pay for your final expenses, such as funeral expenses, unpaid
medical bills and estate taxes.
-
Set up an emergency fund to cover unexpected bills.
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Set aside money that will be earmarked for your children's
education and your spouse's retirement.
-
Provide a nest egg to generate enough income each year to
enable your family to maintain its current standard of living.
How Much is Needed to Fund Your Family's Nest Egg?
Figuring out how much life insurance you'll need to pay off your
debts is easy. Simply make a list of how much you owe to each
of your creditors, and calculate the total of that list.
Determining how much of a nest egg to leave your family is much more
complicated. Here's what you need to do:
-
First, determine how much income your family will need each year to
maintain its current standard of living.
-
Next, take a look at the interest rates that your family can earn by
investing in safe investments such as a Certificate of Deposit issued
by a bank or a United States Treasury Note issued by the federal government.
-
Finally, divide the annual income you'd like to provide to your
family by the interest rate you could earn with a safe investment.
For example, let's say that you'd like to provide your family with
$50,000 of income per year, and you can earn 5% per year by investing
in either a Certificate of Deposit or a U.S. Treasury note.
Believe it or not, you'd need to have $1,000,000 invested, earning 5%
per year, to provide your family with $50,000 of income annually.
If you have any questions about life or disability insurance, feel
free to e-mail our in-house insurance specialist at cpa@mdtaxes.com.
LIFE
INSURANCE DEFINITIONS
|
Annual Renewable Term |
A life insurance policy that automatically renews each year. Premiums
increase each year, while the amount of life insurance coverage
remains the same. |
|
Decreasing Term |
While the amount of life insurance coverage decreases each year, the
premiums remain level for the duration of the policy. Commonly used
for mortgage protection. |
|
Level Term |
Both the amount of life insurance coverage and the annual premium
remain the same over the policy period. Usually purchased for 10-30
years. The longer the duration, the more expensive the premium. |
|
Whole Life |
Both the amount of life insurance coverage and the annual premium
remain constant for your "whole life". Policy builds
"cash value", which is available to you to be used for
other purposes. |
|
Universal Life |
The amount of life insurance coverage and the annual premium increase
or decrease depending upon your current needs. Policy builds cash
value if the premiums paid exceed the cost of the life insurance. |
|
Variable Life |
Similar to whole life insurance except cash values are invested in
mutual fund-like accounts. With these policies, the amount of life
insurance coverage remains constant for life of policy |
|
Variable Universal Life |
The amount of life insurance coverage and the annual premium increase
or decrease depending upon your current needs. Additional premiums
are invested into mutual fund-like accounts. |
NEED SOME HELP WITH YOUR TAX PLANNING?
Check out our Directory of
Affiliated Offices to find a CPA near you who specializes in the
tax planning and preparation for young health care professionals.
TAX AND FINANCIAL PLANNING
CALENDAR FOR JUNE, 2002
|
Month |
Income Taxes |
Saving and Investing |
|
June |
|
|
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THE LONGEST DAY OF THE YEAR COMES IN
JUNE. WHY NOT USE SOME OF THAT DAYLIGHT TO WORK THROUGH YOUR
PERSONAL FINANCES?
If you're married, and you and your spouse need
some guidance, check out
NewlywedFinances.com.
(Brought to You By Your Friends at MDTAXES.COM)
|
2000
& 2001
TAX FACTS
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For 2001, the standard deduction for a single individual is $4,550
and for a married couple is $7,600. A person will benefit by
itemizing once allowable deductions exceed the applicable standard
deduction. Itemized deductions include state and local income taxes,
real estate taxes, mortgage interest, charitable contributions, and
unreimbursed employee business expenses. For 2002, the standard deduction has increased
to $4,700 for single individuals and to $7,850 for married couples.
- For 2001, the personal exemption is $2,900. Individuals
will claim a personal deduction for themselves, their spouse, and
their dependents. For 2002, the personal exemption has
increased to $3,000.
- The maximum earnings subject to social security taxes
has been increased to $84,900 in 2002 from $80,400 in 2001.
- The standard mileage rate has been increased to
$.365 per mile in 2002 from $.345 per mile during 2001.
- The maximum annual contribution to a 401(k) plan or
a 403(b) plan has been increased to $11,000 for 2002 from
$10,500 in 2001. And if you'll be 50 or older by December 31,
2002, you can contribute an extra $1,000 into your 401(k) or 403(b)
account this year.
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