Life.

A number of companies offer their workers life insurance coverage as part of an employee benefit package. Life insurance protects family members against the premature death of a primary wage earner, paying a specified amount to that employee's beneficiaries.

WHAT IT IS: The employer does not take out a separate life insurance policy on each individual employee, but rather purchases a single group policy that provides coverage for all participating employees.

This arrangement can be a relatively inexpensive way for the employee to obtain some coverage. Some employers may shoulder the entire cost of a group policy, but even if the employee has to pay part of the group premium, the amount will likely be less than the premium if the policy was bought separately. The employer can get a reduced rate because the risk to the insurance company is spread out among the members of the group, and as a result, medical exams and other screening processes are generally not required.

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WHAT IT INCLUDES: Besides the primary benefit of life insurance, the funds also can help ensure that dependents are not burdened with significant debt.

Life insurance policies may cover expenses that are incurred in the event of a funeral, or help pay estate taxes. Policies can also protect a policyholder's family from various mortgages, loans and debts the policyholder may have had. Furthermore, if the policyholder had no assets to pass on to heirs, policy benefits can serve as an inheritance.

The benefit amount on group life insurance policies is determined by the employer, and it may be a flat amount for everyone, or may be based on a schedule. Employers sometimes will give employees a basic amount of life insurance, and then allow the employee to buy additional coverage.

Life insurance policies also can have additional features--called riders--that can be included in the policy, or paid for by the employee as a voluntary benefit. They are a way to tailor policy coverage. Some common policy riders include:

Accelerated benefit: This benefit--also called a viatical settlement or living benefit--allows the insured to receive death benefits while still living. Cases when this is most often done is when the insured has become terminally ill or is facing a long-term illness and needs financial help.

* Accidental Death and Dismemberment: This feature provides a lump-sum benefit. A benefits schedule likely will show the type of accidental injury or loss, and the corresponding benefit amount. A double indemnity option pays an amount double the face value.

* Family Income Benefit: The family of a deceased policyholder keeps receiving his or her monthly income.

* Guaranteed Insurability: The insured retains the right to purchase additional benefits at a future date without providing more or new evidence of insurability. It may also guarantee the policy's renewability.

* Spouse and Children's Insurance: Offers coverage for the spouse and/or children of a policyholder.

* Waiver of Premium: This allows continued coverage if the insured can't pay the premium due to a disability.

VALUE TO EMPLOYEES

* Financial protection for the employee's family; and

* No income tax is payable on proceeds paid to beneficiaries, up to a limit.

VALUE TO EMPLOYERS

* Employers can generally deduct group life premiums from taxes.

TYPES OF LIFE INSURANCE

* Term Life: Insurance that lasts for a specific amount of time. Term life policies have an ending date, and the dollar amount is only paid out to a beneficiary if the policyholder dies before that ending date. Coverage under a group policy generally ends when employment ends, although in those cases, the employee may be able to convert the policy to whole (permanent) life insurance.

* Whole (Permanent) Life: Policies last for as long as the insured person is alive, assuming the premiums are paid on time. Because of the length of time these policies can remain in effect, the insurance company collects more money than is necessary in the early years of the policy to cover later years. That extra money accumulates as cash values--money that the policyholder can borrow against or collect if he or she cancels the policy. That extra money can also earn interest.

Split dollar plans are increasingly being utilized to purchase whole life policies. The elements of the policy--death benefits, cash values and premiums--are divided between the employer and employee. When the employee dies, the employer receives an amount equal to the total premiums paid. The employee's beneficiaries receive the remaining death benefit.

* Universal Life: These are basically whole life policies that incorporate a savings element. The cash values that are accumulated are put into investments with the intention of earning more in interest. Those accumulations can be used to help pay later premiums, or to build up the benefit amount. If a group universal plan is offered, employees likely will pay the premiums. However, the policy is portable should the employee leave the company.

* Variable Universal Life: These policies allow employees to invest the cash-value reserve into mutual-fund-like accounts. Since the policy values may vary based on the performance of the investments, these policies present an investment risk to the policyholder.

* Equity-indexed Life: This spin on universal life ties the cash value to a certain market index. If the index is higher at the end of the year, then the individual's cash value may go up. However, if the index doesn't go up, or goes down, then the cash value earns whatever the minimum guaranteed interest rate is. So with potentially higher interest crediting rates, and a limited risk of investment loss, equity-indexed life policies find a middle ground between universal and variable universal life.

Critical Illness Insurance

WHAT IT IS: A relatively new form of coverage that can be offered as an employer-paid or voluntary benefit. It typically pays a lump sum to someone who suffers a specified critical illness and survives. The money is tax-free and can be used for any purpose, from converting a house to paying off a mortgage.

It also can be sold as a stand-alone product, or a rider to another type of policy, typically life or cancer insurance.

WHAT IT INCLUDES: The policies are designed to pay out 30 days after the initial diagnosis. In contrast, it can take six months for long-term disability payments to begin, and even then, they arrive in staggered installments.

Covered illnesses and diseases can include Alzheimer's disease, heart attacks, kidney failure and strokes. Medical conditions that qualify also can arise from serious injury--such as paralysis--or specified major surgeries --such as an organ transplant.

DID YOU KNOW?

World renowned heart surgeon Dr. Marius Barnard of South Africa, who recognized the financial strain being put on survivors of serious illnesses, helped to develop critical illness insurance in the early 1980s. Previously, on Dec. 3, 1967, Dr. Marius Barnard assisted his brother, Christiaan, in the world's first human heart transplant operation.

HOW MUCH LIFE INSURANCE DO YOU NEED?

A ballpark figure of how much life insurance is needed can be expressed
as the difference between the expenses an individual's family would
have should the individual die, and the assets or resources that would
be available to the family.

In the following example, the individual has a spouse and two
children--one a toddler, the other in high school. The assumption on
how many years dependents will need income is 20 years.

EXPENSES

Final Expenses

Note: Line items not listed here that could apply are any
legal fees and/or business buy-out costs.

                                                 Example      Your need

 1. Funeral expenses                             $10,000         --
    Note: A basic funeral usually
    costs around $5,000.
    Add-ons like flowers or
    limousines can push
    the cost to approximately
    $10.000 or even more.

 2. Probate fees                                 $5,000          --
    Note: These are the
    expenses required to settle
    the estate of the deceased.

 3. Estate taxes                                 0               --
    Note: Generally only
    applies to large estates

 4. Medical Costs                                0               --
    Note: This could include
    uninsured costs, or
    amounts past insurance
    maximums.

 5. ADD LINES 1 THROUGH 4                        $15,000         --

Debts

 6. Mortgage Balance                             $180,000        --

 7. Property Taxes                               $4,000          --

 8. Credit card balance(s)                       $8,000          --

 9. Auto loan balance                            $6,000          --

10. Other loan balances                          $52,000         --

11. ADD LINES 6 THROUGH 10                       $200,000        --

Future Expenses

Note: A line item not listed here that could apply is projected or
remaining private schooling costs.

                                                 Example      Your need

12. Income                                       $120,000        --
    Note: To arrive at this
    number, follow these steps:

    a. Calculate monthly expenses,
       including food, clothing,
       utilities, rent if
       applicable, etc.
    b. Calculate how much money
       from other sources--such
       as a spouse's monthly
       income or Social Security
       benefit.
    c. Subtract letter b from a
       for a total monthly
       financial need.
       Multiply that by 12 to get
       a total yearly financial
       need.
    d. Multiply that annual amount
       by the number of years
       dependents should expect to
       need that annual amount.

13. Emergency Fund                               $20,000         --
    Note: About 3 to 6 months'
    worth of after-tax salary.

14. Projected/Remaining college/childcare        $100,000
costs

15. ADD LINES 12-14                              $240,000        --

16. ADD LINES 5, 11 AND 15 FOR TOTAL EXPENSES:
                                                 $455,000        --

ASSETS

Note: A line item not listed here that could apply is equity in
a second home or investment property.

17. Bank and savings account balances            8,000           --

18. Retirement account balances                  120,000         --

19. Securities                                   3,000           --
    Note: Add together current
    market values of stocks,
    mutual funds, bonds, etc.

20. Current life insurance                       45,000          --
    Note: Usually the benefit amount of an
    employer's policy.

21. Other assets                                 14,000          --

22. ADD LINES 17 THROUGH 21
TO ARRIVE AT A TOTAL FOR ALL ASSETS:

                                                $190,000        --
23. SUBTRACT LINE 22 FROM LINE 16 TO GET
THE APPROXIMATE LIFE INSURANCE NEEDED:
                                                $265,000        --
                                        ($455,000-$190,000)