Critical Issues: Short Articles

Durable Power of Attorney/ Living Will

Someone I know dearly just ended up in the hospital with a serious infection.  Close to 90 years old, this is serious. 

 But this person had a Power of Attorney naming the eldest child as the primary one who could make medical decisions if this person could not (with 2 backups), e.g. if under anesthetic and a problem shows up.  This person also has a Living Will specifying the comfort wanted if seriously ill, the kind of medical treatment wanted and what he/she wants to happen upon death. 

 As all the children and doctors know these wishes, and the document is legal, decision-making is simple and family disputes are largely forestalled.  Please have your parents do this – and do it yourself. 

 Del Hegland, Agent  805-563-1000

 What can happen when a young parent dies

A 30 year-old client was killed returning home.  This person left behind a stay-at-home parent, a very young child, a new mortgage – and tragedy. 

Challenges for the surviving spouse

• No established income or occupation – for years and no accumulated pension.  Getting a good job could take years, especially juggling networking and interviews with parenthood. And training and contacts were old;
• Lost Benefits: Possibly no health insurance or other benefits, except maybe at a price;
• Instantly dad and mom;
• Loss of spouse’s skills and help;
• Grief: both surviving spouse and child needed counseling to deal with the loss.  This can be severe, take years, time, money, lost jobs or promotions, distractions; 
• Extended family relationships can slowly disappear;
• Friendships change –many friendships depend on being a couple.  And the surviving spouse may now be competition to an established couple;
• Loneliness;
• Bills: The mortgage, medical bills, legal time and fees, repairs and upkeep – where will the energy, time and $$ come from??

 A partial solution:

My client had $600,000 of term life insurance, costing about $40/month – very affordable for that security.  That went promptly to the survivor, tax-free.   That eased financial fears – a lot.  If my client had aged, premiums would have risen considerably, but we were discussing getting whole-life insurance and that might have solved the long-term need. 

Please, talk to an established professional and protect your family – just in case.  Life happens.

Del Hegland, Agent 805-563-1000

Life Insurance on a Key Person:

A key person in your business can include the owner, a key investor, or a critical employee, for instance a top salesperson, the general manager, the CFO or controller.  Life insurance on that person can provide a prompt injection of funds to the company to help it buy time and survive while a replacement is sought out, or the business reorganizes. 

 Example:  If John, a top salesman, knows all major clients personally and likely solutions to the various problems, he is very significant to the company’s success.  If he falls from working on the roof at home, or has a stroke, and dies, the impact on both family and business can be tragic.  A 10-year term policy for $500,000 possibly costing less than $100 a month can buy the company considerable time to recover – and his wife can be one of the relieved beneficiaries.  I know of one instance where this tragedy happened - and the owner had a potentially business-ending disaster as there was no “just in case” plan.

Del Hegland, Agent 805-563-1000

Life Insurance on the Owner – benefiting employees!

Example: I know a couple business owners who have a life insurance policy on their lives with key employees as beneficiaries.  Why?  They own small companies: the talents and contacts lie with the owner.  If the owner dies the business ends and loyal staff are suddenly unemployed with no benefits and no income. 

By insuring their lives, they provide these employees with a substantial cushion – maybe $50,000 each.  A 10-year $250,000 term policy on a 45 year old could cost only about $30/mo.  When I was in retail, I had a $500,000 policy to give key employees a needed cushion or time to reorganize the business and keep it going. 

Del Hegland, Agent 805-563-1000

My Insurance Policies:

Do I understand how they work?  Will they work well for the long term?

Review the policies you have or want.  Take them to an experienced professional if you are unsure.  Understanding how they work is critical so you/your family aren’t sorely disappointed if you do need them. 

Example:  A term life-insurance policy has level premiums for a fixed number of years, then can terminate or the premiums can dramatically increase, e.g. from $1,000/year to $10,000/year, with those premiums growing by 10-15% annually.  This is simply the nature of term policies.

Example:  A client in his 50’s had a life insurance policy that only cost around $8/mo. I told him and his shocked wife that he had an accidental death or dismemberment policy.  For it to pay the life insurance premium, he had to die from an accident, e.g. getting killed by a truck (and die within 1 year of the accident), not from natural causes, disease or illness e.g. a stroke or other health ailment. 

Del Hegland, Agent 805-563-1000 

When should I get life insurance?

Typically, the older you are when you start a policy, the more costly it is: typically, 40-yr old John has a much higher chance of living 20 years than 60-yr old Jim (in the same health, etc.), so Jim’s initial premiums can be several multiples higher than John’s (both starting at the above ages, for the same policy, etc.). 

A permanent policy on a younger person can cost far less in the long run and can provide life-long protection.  And the sooner you start, the sooner you are covered – and life is full of the unexpected.  Consider a policy as soon as there is a potential need.

Del Hegland, Agent 805-563-1000 

Should I insure my children?  

Insuring 10 year-old Jane, particularly with a permanent policy like whole life, can lock in a health rating while she is very young and healthy. 

• If it is a convertible term, you can later convert it to a permanent product, like whole life.  If it’s a whole-life product, it may steadily grow over time so that by the time Jane becomes a wife and/or mom, there’s a well-established policy in place; 
• She may later catch a disease, have an accident or exercise poor judgment and be challenging to insure.  If she already has an established policy, those shouldn’t affect the rates;
• Premiums can be very modest – for the rest of Jane’s life;
• If Jane dies young, the benefit from a life policy can enable the family to take the time off to grieve, get counseling and try to cope.  Near-instant liquidity can make a huge difference;

The owner of Jane’s policy, typically a parent, can retain ownership indefinitely.  I’d suggest gifting it to Jane – but not until you feel she will not cash it in (if it has cash value), e.g. wait until she becomes a mom.   

Del Hegland, Agent 805-563-1000