Social Media Scams and Ghost Tax Preparers

On the final weekend before taxes are due, the Internal Revenue Service (IRS) published two letters that caution taxpayers about the risks of tax advice found on social media and tax returns created by ghost preparers.

Millions of taxpayers regularly view various social media sites. However, the IRS explains that there are many inaccurate or misleading tax sources on social media. This misinformation can lead taxpayers into serious scams and trouble with the IRS.

IRS Commissioner Danny Werfel stated, "Social media is an easy way for scammers and others to try encouraging people to pursue some really bad ideas, and that includes ways to magically increase your tax refund. There are many ways to get good tax information, including [following] @irsnews on social media and from trusted tax professionals. But people should be careful with who they are following on social media for tax advice."

The IRS and Security Summit partners work together with state tax agencies to protect taxpayers. They highlight a number of fraudulent strategies that are recommended on the Internet.
  1. Fraudulent Form W-2 — Taxpayers may be encouraged to use tax software to fill out false IRS Form W-2, Wage and Tax Statement such as a large income and withholding amount. Based on this false income and withholding, a taxpayer then files a fraudulent tax return and applies for a substantial refund.
  2. False Form 7202 — IRS Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals, allows taxpayers to receive credits during 2020 and 2021. These credits are not permitted in 2023.
  3. Fraudulent Schedule H — Another scheme encourages taxpayers to file a false Schedule H (Form 1040), Household Employment Taxes. The taxpayer claims he or she paid sick or family medical leave wages and therefore qualifies for a refund.
  4. Fraudulent Form 8944 — IRS Form 8944, Preparer e-file Hardship Waiver Request, is designed to be used by professional tax preparers. It allows the taxpayer to request a waiver to file a paper tax return, rather than an electronic return. This is not used by the typical taxpayer and cannot be used to avoid tax liability. If a taxpayer applies for a refund using this form, it is likely to lead to serious consequences including civil and criminal penalties.
The other problem that surfaces during tax season is a "ghost preparer." IRS Commissioner Danny Werfel noted, "Ghost preparers and other shady return preparers form a real threat every tax season to well-meaning taxpayers. By trying to make a fast buck, these scammers prey on seniors and underserved communities, enticing them with bigger refunds by including bogus tax credit claims or making up income or deductions. But after the tax return is filed, these ghost preparers disappear, leaving the taxpayer to deal with consequences ranging from a stolen refund to follow-up action from the IRS."

Qualified tax preparers are required to sign a return and include a valid preparer tax identification number (PTIN). Ghost preparers generally do not sign returns and follow other bad practices including shady fee practices, such as a cash-only payment with no receipt. The ghost preparer often will invent false income to try to increase tax credits or claim false deductions. Finally, it is a red flag if the preparer recommends sending the refund to another bank account rather than the taxpayer's bank account.

If you are aware of a ghost preparer, you can use IRS Form 14242, Report Suspected Abusive Tax Promotions or Preparers to alert the IRS.

Health Travel Tips for Travelers


We have been looking forward to traveling, but my spouse has a heart condition and back problems. What tips can you offer those with health issues who are planning to travel?

A dream vacation can turn into a nightmare if you get ill or injured while you are away and are not prepared. Before traveling, here are some tips to help ensure a safe trip:

Be prepared: Before you go, talk with your doctor about your travel itinerary and what precautions you need to take prior to traveling. You should also have your doctor's contact information with you when you travel, as well as a list of the medications you are taking in case you need emergency medical care while you are away.

It is also a smart idea to locate health clinics or urgent care facilities near the areas you are visiting. Your hotel can help you with this or a simple internet search can identify nearby health care services. If you are traveling abroad, the U.S. consulate or embassy in the countries you are visiting may provide referrals.

If you are traveling outside the U.S., you should find out the conditions in the countries you are visiting and what, if any, vaccinations or preventative medications are recommended. See or call 800-232-4636 to get more information.

Check your insurance: If you have private health insurance or a Medicare Advantage plan through an HMO or PPO that covers in-network doctors only, check your plan to find out what is covered should you require medical care when traveling outside of your geographic area.

Beneficiaries that have original Medicare are covered across the U.S. However, if you are traveling abroad, coverage is typically not included, except for rare circumstances. Nevertheless, some Medicare Advantage plans and some Medigap supplemental policies do provide limited coverage. It is important to note that most private health plans do not pay health care costs outside the U.S. It is advisable to verify coverage details prior to travel.

Many individuals traveling abroad purchase travel insurance with medical coverage. Depending on the coverage purchased, these policies can include reimbursement if there is a trip cancellation, payment for medical treatment received overseas or costs for medical evacuations. It is best to get a policy that covers preexisting medical conditions.

Organize your medications: Make sure you have a sufficient supply of medications to last the entire duration of the trip. If traveling by air, you should pack necessary medication in your carry-on bag, in case your checked luggage is lost or misdirected. It is best to keep your medications in their original packaging to get through airport security without delays. Additionally, carrying a note from your doctor that explains why you take these medications, especially if syringes or other medical supplies are involved would be advisable.

For airport security requirements visit – and click on "Disabilities and Medical Conditions." You can also call TSA Cares at 855-787-2227 prior to traveling with questions about screening policies, procedures and what to expect at the security checkpoint.

Maximize technology: Keep a list of your medications and other important health and medical information with you or on your smartphone to easily access and share with emergency health care providers when you are traveling.

Savvy Living is written by Jim Miller, a regular contributor to the NBC Today Show and author of "The Savvy Living" book. Any links in this article are offered as a service and there is no endorsement of any product. These articles are offered as a helpful and informative service to our friends and may not always reflect this organization's official position on some topics. Jim invites you to send your senior questions to: Savvy Living, P.O. Box 5443, Norman, OK 73070.

Best Cell Phones for Seniors

Can you recommend some good cell phones for seniors?

For older adults, choosing a cell phone is not a one-size-fits-all proposition. While some seniors love the cutting-edge smartphones with advanced features, others will prioritize simple phones with basic functions. So, the best cell phone will depend on the user’s comfort with technology, preference and budget.

Best Cell Phones

To help identify the best cell phones for older adults it is important to consider what features users prioritize to narrow down the options. For example, some may choose full-featured smartphones because they are comfortable with technology. Others who are less tech-savvy will prefer phones with fewer features. Alternatively, individuals coping with vision, hearing or dexterity issues will want a phone with specific accessibility features tailored to their needs.

Smartphones: Smartphones will cater to users who are comfortable with technology and are willing to spend more for a top-tier smartphone with a range of accessibility, health and safety features. Typically, smartphones will include internet access, a web browser, email capabilities, high-resolution camera and the ability to download and run applications independently. There are numerous companies producing smartphones today, but the largest companies include Apple, Android, Samsung and Google. Each brand will have its own unique features and accessories with prices varying across different phone models. For tech-savvy individuals, it is recommended to research each brand to find the most suitable model. Many big box retailers have smartphones on display to allow consumers to test out features.

Cell Phones with Built-In Safety Features: There are cell phones that are specifically designed for seniors with memory issues or more-advanced cognitive decline. These phones feature uncluttered, simple functionality which allows users to stay in touch with family and friends while also reducing common problems such as unnecessary calls to emergency services, spam, and fraud. Such phones typically include safety features such as SOS links, nurse hotlines and fall detection.

Easy-to-Use Cell Phones: Today, phone companies are still producing easier to use phones, such as easy to navigate senior-centric smartphones and simplified flip phones if the user does not want or need all the functionality of a full-featured smartphone. Simple smartphones offer list-type menus, rather than icons and come with enhanced voice command technology to assist users. Other options for simple cell phones may provide large buttons, big screen type, preset dial options and easily accessible SOS emergency buttons that will alert preselected contacts by call and text.

In summary, selecting a cell phone for older adults will involve considering individual preferences, technological comfort and their specific needs. By evaluating these factors and researching available options, older adults can find devices that not only improve their methods of communication but are also tailored to their specific needs.

Savvy Living is written by Jim Miller, a regular contributor to the NBC Today Show and author of "The Savvy Living" book. Any links in this article are offered as a service and there is no endorsement of any product. These articles are offered as a helpful and informative service to our friends and may not always reflect this organization's official position on some topics. Jim invites you to send your senior questions to: Savvy Living, P.O. Box 5443, Norman, OK 73070.


Published April 5, 2024

April 15 - File or Extend?

As the April 15 tax deadline rapidly approaches, the Internal Revenue Service (IRS) reminded taxpayers that they have multiple filing and payment options. The IRS continues to recommend that taxpayers file returns electronically. The software used for electronic returns reduces possible tax errors. It also facilitates prompt refunds — most individuals receive a refund within 21 days.

Taxpayers with income of $79,000 or less may use the IRS Free File software. Individuals with higher incomes can use the IRS Free Fillable forms. A new option this filing season is IRS Direct File. The IRS tax software is available for basic returns in 12 pilot states. The website has additional information on the Direct File program.

The IRS also encourages individuals to use the Volunteer Income Tax Assistance (VITA) or the Tax Counseling for the Elderly (TCE) programs. These programs offer free tax preparation to most individuals or seniors. Members of the military also may benefit from MilTax, a Department of Defense program offering free tax return preparation.

Taxpayers are encouraged to use the "Where’s My Refund?" tool. This helpful program on the website is available if you have your Social Security number, your filing status and your exact refund amount. You can also use the "Where’s My Refund?" service on your smartphone with the IRS2Go app.

If you owe taxes, you must pay the correct amount by Monday, April 15. An exception is available for residents of Maine or Massachusetts. Due to state holidays, their tax deadline is Wednesday, April 17, 2024.

There are multiple options to pay your taxes. An excellent method is Direct Pay from your checking or savings account. You may also pay with a debit card, credit card or digital wallet. The Electronic Federal Tax Payment System (EFTPS) is a convenient method. Many taxpayers use an electronic funds withdrawal from their bank account. Other options include a check or money order or cash. The cash payment is more complex and is explained on

If you are not able to pay your tax in full, there are both short and long-term payment plan options. A tax bill of less than $100,000 may be paid over 180 days with the short-term plan. If you owe less than $50,000 in tax, penalties and interest, the long-term payment plan may allow you to stretch out payments for up to 72 months. You may go to the webpage to view qualifications for payment plans.

If you are unable to file by April 15, you can use IRS Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. The six-month deferral will allow you to file by October 15, 2024. However, you are required to pay the correct amount of tax by April 15th, even if you extend the filing date. You should estimate and pay your correct tax due. There are exceptions for individuals serving in a combat zone, those living outside the United States or taxpayers in certain disaster areas.

Tax Season Phishing and Smishing Scams

On March 28, the Internal Revenue Service (IRS) started the process of publishing the annual Dirty Dozen list. The first scams highlighted this year are phishing and smishing, which aim to steal sensitive information and use it for identity theft.

IRS Commissioner Danny Werfel stated, "Scammers are relentless in their attempts to obtain sensitive financial and personal information, and impersonating the IRS remains a favorite tactic. People can be anxious to get the latest information about their refund or other tax issues, so scammers frequently try using the IRS as a way to trick people. The IRS urges people to be extra cautious about unsolicited messages and avoid clicking any links in an unsolicited email or text if they are uncertain."

The Dirty Dozen campaign is designed to protect taxpayers from financial losses and the compromise of personal information or data. Each year, the IRS Security Summit attempts to educate taxpayers about the latest fraudulent schemes.

During tax season, fraudsters create new and powerful schemes. Both taxpayers and tax professionals are targets of email and text scams. A favorite fraudster strategy is to impersonate the IRS or a state tax agency. Taxpayers should be on guard to protect their information.
  1. Phishing — A phishing attack is an email by a fraudster who often claims to represent the IRS. The most frequent use of phishing is the promise of a phony tax refund. Another strategy is a claim that you must respond immediately or you will face criminal charges for tax fraud.
  2. Smishing — Nearly all taxpayers now have a smartphone with SMS text messaging. A text message by a scammer could be quite effective and look like it is from a trusted source. Text scams include messages such as, "Your account has now been put on hold," or "Unusual Activity Report," or a "Solutions" link to restore your IRS accounts. Taxpayers should not click on any of links as they could load malware on your phone.
  3. Phishing Friend — An effective attack by a fraudster may use a stolen email account of a family member or friend. The fraudster logs on to the email service and sends you the email. Because you are accustomed to receiving emails from a family member or friend, you are much more likely to click on a link and unintentionally load malware on your computer.
A general rule is that you should never click on links or respond to these tax-related phishing or smishing attacks. You can forward emails to If you are the victim of a monetary scam, you should report it to the Treasury Inspector General for Tax Administration (TIGTA), the Federal Trade Commission (FTC) and the Internet Crime Complaint Center (IC3).

There are specific ways to respond to a phishing attack. If you receive an email or a text message that promises you a large refund, an inheritance or claims you are a lottery winner, do not reply. Do not open attachments or click on any links. Forward the email to and delete the original email. For text messages, send the message to 7726 (SPAM). Additionally, you can email and include both the Caller ID and message and thereafter delete the original text.

If you become aware of a tax scheme, you can report that to the IRS with Form 14242, Report Suspected Abusive Tax Promotions or Preparers.

Updating Medicare and Social Security When You Move

I am moving to a different state so I can be near my family. Do I need to notify Social Security and Medicare about the move?

If you are a Social Security and Medicare recipient, you need to notify these federal agencies when and where you move so that there are no interruptions in your benefits or coverage. Here is what you should know.

Update Your Information

If you are receiving Social Security retirement, survivors or disability benefits, you should notify the Social Security Administration when you move to avoid disruptions of payments and to continue to receive timely information.

You will need to provide the Social Security Administration with your new mailing address so it can deliver important documents to you like your annual SSA-1099 tax form. If you are switching banks or credit unions, you must update your direct deposit information by providing your new financial institution's routing number and account number.

If you are a Medicare beneficiary, Medicare also needs your new mailing address in order to send bills, correspondence, Medicare Summary Notices and other statements to the correct address.

You may update both your Social Security and Medicare contact information online by simply using the "My Profile" tab in your personal "my Social Security" account at If you do not have an account, you can create an online account for free. You can also update or change your direct deposit information on your "my Social Security" account.

If you need help or do not have internet access, call the Social Security Administration at 800-772-1213 or visit your local Social Security office.

Medicare Private Plans

If you are enrolled in original Medicare, you can move to anywhere within the United States without losing coverage. If, however, you have Part D prescription drug coverage or a Medicare Advantage plan from a private health insurance company and you move out of the plan's service area, you need to switch plans or risk losing coverage. Part D service areas are typically statewide, but some extend to parts of neighboring states. Medicare Advantage plans' service areas and options vary by county.

Moving out of a plan's service area qualifies you for a special enrollment period (SEP) which affords at least two months to obtain a new plan. You may also qualify for a SEP if you move within your plan's service area and the plan offers different options from what you had in your previous area. The enrollment timing depends on when you notify the plan.

If you notify your plan provider before you move, your opportunity to switch plans begins the month before your move and continues for two months after you move. If you notify your plan provider after your move, your chance to switch plans begins the month you informed your provider plus two more months.

To shop for new Part D and Medicare Advantage plans in your new area, use the Medicare Plan Finder tool at You can also switch Part D or Medicare Advantage plans during open enrollment, which runs each year from October 15 to December 7 for coverage starting January 1.

Medigap Plans

If you are enrolled in original Medicare and have a Medigap supplemental policy, you usually do not have to switch plans if you move. It is recommended, however, that you notify your provider. Some insurers let you keep the rate based on the state where you originally applied for Medigap. Others may change your premiums to coincide with their coverage in a different zip code. Massachusetts, Wisconsin and Minnesota have different standardized plans. If you are moving to or from one of these states, you may have to switch plans.

Savvy Living is written by Jim Miller, a regular contributor to the NBC Today Show and author of "The Savvy Living" book. Any links in this article are offered as a service and there is no endorsement of any product. These articles are offered as a helpful and informative service to our friends and may not always reflect this organization's official position on some topics. Jim invites you to send your senior questions to: Savvy Living, P.O. Box 5443, Norman, OK 73070.


Published March 29, 2024

Ten IRS Tips To Avoid Tax Return Errors

On March 18, 2024, the Internal Revenue Service (IRS) reminded taxpayers that the April 15 filing deadline is quickly approaching. To assist taxpayers, the IRS offered ten tips to help avoid tax errors and speed up any potential refund.
  1. Tax-Related Paperwork — Taxpayers should collect all Forms W-2 and 1099. You may have other paperwork that supports your charitable tax deductions, education credits and mortgage interest payments. You should also have access to your 2022 tax return.
  2. Electronic Filing — There are several ways to file electronic returns. Taxpayers can use the IRS Free File program or the new Direct File Pilot which is now available in 12 states. Filing online minimizes math errors, and the software will highlight potential tax credits or deductions. In addition, with electronic filing you can request a prompt refund through direct deposit.
  3. Filing Status — You may file as a single person, a head of household, a married couple filing jointly or a married couple filing separate returns. It is important to select the correct filing status. If you have any questions, use the Interactive Tax Assistant on
  4. Names, Birthdates and Social Security Number — You must correctly report your name, date of birth and Social Security Number. A frequent error is failing to report this information for each dependent on your return. If a dependent does not have a Social Security Number, you should obtain and use an Individual Tax Identification Number for them.
  5. Digital Assets — All taxpayers are required to answer "Yes" or "No" to the digital asset question. If you have any digital asset transactions, you are required to report the related income. The Digital Assets page on provides additional information.
  6. All Taxable Income — Taxpayers are generally required to report all income. If you fail to report all your income, your tax refund may be delayed. Income could include interest earnings, unemployment benefits, gig economy earnings or payments from digital asset sales. IRS Publication 525, Taxable and Nontaxable Income may be helpful if you have questions.
  7. Bank Routing and Account Numbers — Most taxpayers use direct deposit for their refund. To do so, they must provide the correct bank information to receive a direct deposit. It may greatly delay your refund if you do not have the correct routing and account number.
  8. Sign and Date Your Return — If you are submitting a joint return, both spouses must sign and date the return. If you are filing electronically, both spouses will need to authenticate signatures by inputting the adjusted gross income (AGI) from their 2022 tax return. There is assistance on with the title "Validating Your Electronically Filed Tax Return."
  9. Proper Address for Paper Return — If you choose to file a paper return, you must be careful to select the correct mailing address for the IRS. There are instructions for IRS Form 1040 to assist with mailing if you file a paper return.
  10. Copy of Your Tax Return — Taxpayers should create and retain a copy of their return. This will help with future tax returns, identity verification and electronic filing.


Published March 22, 2024

Who Should Be Screened for Lung Cancer?

Who should get screened for lung cancer and what are the Medicare coverage guidelines? I quit smoking many years ago, but I am unsure if I should be screened.

Despite not having smoked for many years, you may still be due for an annual lung cancer screening, based on new recommendations from the American Cancer Society (ACS).

The new guidelines state that adults ages 50 to 80 who currently smoke or previously smoked the equivalent of one pack a day for 20 years should get an annual low-dose computed tomography scan (LDCT scan). This would apply regardless of how long ago you quit.

ACS cancer screening guidelines previously said that those who quit 15 or more years ago were not eligible for an LDCT scan each year. However, new studies have shown that expanding screening eligibility saves lives, even among people who quit smoking 15 or more years earlier. Now, the screening guidelines do not consider the years since quitting as criteria.

Early Detection Saves Lives

Lung cancer is the deadliest cancer in the United States. According to the ACS an estimated 234,580 new cases are expected to be diagnosed in 2024, resulting in about 125,070 Americans deaths from the disease.

While lung cancer can occur in anyone at any age, cigarette smoking is the top risk factor and is linked to about 80% to 90% of lung cancer deaths. In fact, most people diagnosed with the disease are aged 65 or older.

Lung cancer can pose a significant challenge since it is often symptomless until it is at an advanced stage, making it more difficult to treat. A 2023 report from the American Lung Association found that only 4.5% of people eligible for lung cancer screening in the U.S. get screened. The screening rate is as low as less than 1% in some states.

Despite the low utilization of lung cancer screenings, the report showcased advancements in early detection. Per the report, early detection has increased by 9% over the prior five years to reach 26.6% of diagnosed cases, resulting in fewer deaths from lung cancer.

Screening & Coverage

If you are eligible for a lung cancer screening, start by speaking with your doctor, even if it has been a long time since you smoked. Medicare Part B will cover lung cancer screenings with an LDCT scan once a year for individuals of ages 50 to 77 who are either current smokers or quit in the last 15 years and have a 20-pack-year history. Patients must have an order from their doctor or health care provider and should not have symptoms of lung cancer.

An LDCT scan is a noninvasive test where you lie down and hold your breath while being moved through an X-ray machine. The scan takes several X-ray images of the lungs and can help to identify possible abnormalities in the lung tissue.

There are some potential risks with this screening, including the possibility of false positives, which can lead to more scans or invasive procedures. According to the American Lung Association, about 12% to 14% of lung cancer screening scans will have a false positive, which is about the same rate as with mammograms. It should be noted that false positives are not uncommon in screening tests and the rate of false positives drops to 6% after continued annual screenings as the new scans can be compared to previous scans for any changes. As new medical tools and procedures continue to advance, the rate of false positives is expected to further decline.

Savvy Living is written by Jim Miller, a regular contributor to the NBC Today Show and author of "The Savvy Living" book. Any links in this article are offered as a service and there is no endorsement of any product. These articles are offered as a helpful and informative service to our friends and may not always reflect this organization's official position on some topics. Jim invites you to send your senior questions to: Savvy Living, P.O. Box 5443, Norman, OK 73070.

Burial Benefits for Veterans

What types of funeral benefits are available to veterans? My parent served in the military many years ago and I am wondering if they are eligible for any benefits.

The Department of Veterans Affairs (VA) National Cemetery Administration offers a variety of underutilized burial benefits to veterans as well as to their spouses and dependents.

Most veterans (both combat and non-combat) who did not receive a dishonorable discharge are eligible for burial benefits. To verify a service member’s discharge, review a copy of their DD Form 214 “Certificate of Release or Discharge from Active Duty.” If your parent does not have a copy of this form, it can be requested online at

Here is an overview of the different benefits that are available to veterans with a non-service-related death.

Military Cemetery Benefits

Eligible service members can be buried in one of the 155 national or 119 state, territory or tribal-operated cemeteries. Visit online at to search for a national cemetery in your area. In addition to the gravesite, the VA provides other benefits including opening and closing of the grave and perpetual gravesite care, a government headstone or marker, a United States burial flag that can be used to drape the casket or accompany the urn and a Presidential Memorial Certificate. If your parent is cremated, their remains will be buried or inurned in the same manner as casketed remains.

Funeral or cremation costs are generally not paid by the VA. While these costs are the responsibility of the veteran’s family, there are some exceptions. To find out if a veteran or their survivors are eligible for a burial allowance, review the details at

The VA also operates a memorial website called the Veterans Legacy Memorial for any veteran buried in a national, state, territorial or tribal cemetery. This digital platform allows families to post pictures and stories of their loved ones to remember and honor their service.

If you are interested in these VA options, the VA has a pre-need burial eligibility determination program to help you plan. Visit online at to find out the steps to apply or call the National Cemetery Scheduling Office at 800-535-1117.

Private Cemetery Benefits

The VA also provides benefits to veterans buried in private cemeteries. If someone chooses this option, the VA benefits include a free government headstone or grave marker, a medallion that can be affixed to an existing privately purchased headstone or marker, a burial flag and a Presidential Memorial Certificate. As mentioned above, funeral or cremation arrangements and costs are the responsibility of the veteran’s family, and there are no benefits offered to spouses and dependents that are buried in private cemeteries.

Military Funeral Honors

Another popular benefit available to all eligible veterans buried in either a national or private cemetery is a military funeral honors ceremony. This includes an honor guard detail of at least two uniformed military persons, folding and presenting the U.S. burial flag to the veteran’s survivors and the playing of Taps. The funeral provider you choose will be able to assist you with all VA burial requests.

For a complete overview of burial and memorial benefits, eligibility details and required forms visit

Burial Allowances

In addition to the burial benefits, some surviving spouses may also qualify for a burial allowance of $948 and a private cemetery plot allowance of $948. In addition, a benefit of $231 is available for a headstone or grave marker allowance. To determine eligibility or to apply, visit online at

Savvy Living is written by Jim Miller, a regular contributor to the NBC Today Show and author of "The Savvy Living" book. Any links in this article are offered as a service and there is no endorsement of any product. These articles are offered as a helpful and informative service to our friends and may not always reflect this organization's official position on some topics. Jim invites you to send your senior questions to: Savvy Living, P.O. Box 5443, Norman, OK 73070.


Published March 15, 2024

Life Insurance - Costs and Benefits


Let's look at the "top five" reasons people give for not owning life insurance.

1. Too Expensive. "I just cannot afford life insurance right now."

2. Confusing. "We looked at proposals from three companies—page after page of numbers. What does it all mean? I haven't the slightest idea!"

3. Too Many Types. "I checked into term insurance, whole life insurance, universal life, variable life, single premium and survivorship insurance. But which one is right for me?"

4. No Trust. "Those big insurance companies claim to have billions of reserve funds. But one of the biggest insurance companies has been on the ropes for months. Who can you trust?"

5. Don't Plan to Die. "Someday when I plan to die, I will consider life insurance. But for now—don't worry, be happy!"

Five Reasons to Own Life Insurance

There are several reasons for you to purchase life insurance. If you were to pass away, the life insurance death benefits could provide resources that are quite important to your family. The various benefits include payment of your funeral and final expenses, paying off mortgages or other debts, living expenses or income for a surviving spouse, inheritance for children and payment of estate taxes.

1. Final Expenses and Funeral Costs. Usually there are medical expenses during the last weeks of life. These frequently will range from $5,000 to $10,000. Your memorial service preparation and costs can also easily exceed $10,000. Total final expenses can often be more than $20,000.

2. Pay Debts and Mortgages. The payment of debts or a mortgage is a one-time expense. Depending upon the amount of your mortgage, this could cost anywhere from a few thousand dollars to many hundreds of thousands of dollars.

3. Living Expenses for Spouse. The largest amount of insurance is typically purchased to provide both economic security and an investment that will add to the spouse's other annual income. A reasonable method is to estimate a 5% return on the investment. For example, if a spouse needed another $50,000 of income over and above the amount paid by retirement funds, Social Security and other earnings, then insurance equal to $1,000,000 invested at 5% would produce this amount.

4. Inheritance for Children. Permanent insurance is frequently used as a method of providing an inheritance for children. Many parents who make substantial gifts to charity plan to use life insurance as a means of providing additional inheritance for children or other family members.

5. Estate Taxes. If your estate is large, there may be a substantial payment of federal or state estate tax. If you own a business or other assets that are intended to be transferred to family, then your estate could be subject to estate tax. Life insurance can be an excellent method to provide funds for payment of estate tax. Normally, for larger estates the life insurance is owned by an irrevocable life insurance trust so the insurance itself is not subject to estate tax.

Determining the Life Insurance Amount

A fairly simple way for you to determine the total amount of needed insurance is to add up your one-time expenses, then calculate the amount of insurance invested at 5% necessary to benefit a surviving spouse, children or other family members. For example, if your one-time expenses are $200,000 and your spouse desires additional income of $50,000, then the total insurance would be $1,200,000. This amount includes $200,000 for expenses and $1,000,000 invested at 5% to produce the annual income.

More sophisticated calculations are available online. Use your favorite search engine to look for "life insurance needs calculator," and select from the available free public calculators.

How Life Insurance Works

Life insurance started because individuals were concerned that they might pass away and not provide sufficient resources for family. Because young families typically need a substantial fund and lack the ability to save enough in a short period of time, the concept of life insurance was created.

If many thousands of individuals pay premiums and those funds are invested, then a pool of funds will be available to compensate individuals. The life insurance company hires actuaries who determine the probable number of individuals who will pass away in a given year. Especially for younger persons, out of a pool of 100,000 only a few will pass away in a given year. As a result, the insurance company is able to receive all the premiums and invest them in the insurance reserve fund. The earnings and a portion of the funds are distributed each year to pay claims for those who pass away.

The insurance funds are primarily invested in bonds. The insurance company generally receives 1% to 1.2% to cover its overhead and costs. The balance is returned through insurance proceeds to beneficiaries.

Life Insurance Policy Categories

Insurance is generally divided into two categories—term insurance and permanent insurance.

Term Insurance

Term insurance is the least expensive type of insurance and is favored by younger people and many financial planners. The term insurance is available with an annual renewable term (ART) or with a fixed payment for five years, 10 years, 15 years or longer.

Because term insurance does not include any investment or cash value, it enables the largest potential policy to be purchased for the least cost. Due to intense competition within the insurance industry, prices on term policies and level-pay term policies have moved lower in recent years. Young couples often purchase a ten or fifteen-year level term policy. This option provides excellent coverage at reasonable cost.

Some types of term policies also include the ability to convert to whole life or universal life at a future time. If the conversion is elected, then there will be a substantial increase in the premium.

Permanent Insurance

Permanent insurance includes several types. The traditional favorite is whole life insurance, but there are also universal life, variable life and survivorship life insurance.

Whole Life. The traditional whole life policy involves both insurance and a cash value. The premiums are substantially higher than term insurance because the policy will build a savings element or cash value. During the first year, much of the cash value may be used by the insurance company to cover the commission payment to the sales representative, but over time the cash value may increase. The owner of the policy has the right to borrow against the cash value at favorable rates.

Whole life is frequently fixed in terms of premiums paid and death benefit. The insurance company determines the probable return of its reserve fund and, based on the age and health of the insured person, calculates and commits to a fixed benefit in exchange for a certain premium.

Universal Life. Universal life was created to provide an option for people who would consider purchasing term insurance and invest an additional amount in mutual funds. With universal life, the policy is invested and a cash reserve is built up. The insurance reserve growth covers the cost of the insurance policy. Universal life policies may include flexible options for increasing or decreasing premium payments. Of course, the cash value of the policy will change with a modification of the premium schedule.

Variable Universal Life. If the insured desires to own life insurance but also potentially gain from investments in stocks and bonds, a variable policy may be appropriate. With a variable policy the insured typically is permitted to invest in different mutual funds managed by the financial services company. If the mutual funds increase in value, the policy cash value will increase.

Survivorship Life. For a couple, an attractive option is to purchase a survivorship policy. This policy pays a death benefit after both spouses pass away. Because two persons are insured, it frequently is possible to obtain insurance even if one spouse is in poor health. Quite often, this insurance can be purchased at an acceptable premium because two persons must pass away before the death benefit is paid. It is particularly useful for providing funds to pay estate taxes if a business is to be transferred from parents to children after they both pass away.

Life Insurance Beneficiaries

In most estates, life insurance does not pass through the probate process. The insurance policy is a contract between the insured and the insurance company. The person who purchases the insurance has the right to name the beneficiaries. Normally, a primary and a secondary beneficiary are named. It is also possible to divide the insurance policy among several children or other beneficiaries.

A common beneficiary designation is for the spouse to be a primary beneficiary and the children to be the contingent beneficiaries with equal shares. If the spouse were to predecease the insured or they were to pass away in a common accident, then the children would receive the insurance proceeds.

Minor children should usually not be the beneficiaries of a policy. In many states, if a minor child receives a substantial inheritance, a conservator must be appointed to manage the assets. This is quite expensive and also has the disadvantage of transferring the assets to the minor child when he or she becomes an adult.

A much better arrangement is to transfer the policy to a living trust for the benefit of the minor children, or to create a trust and a will for the benefit of the minor children and transfer the policy to the estate to fund that trust.

Prudent Purchase of Insurance

Life insurance is an important decision, and it is helpful to learn about the different types of insurance. Most individuals will also visit with a chartered life underwriter (CLU) or other representative of a financial services company.

The representative can conduct an insurance needs analysis and suggest the appropriate type of insurance. It is helpful for you to do sufficient research to understand the reasons why many individuals choose term insurance or permanent insurance. Most young couples decide to purchase term insurance to maximize coverage. In addition, the use of online calculators to determine insurance funding will also provide you with a better understanding of the appropriate amount of insurance. The amount of insurance recommended by online calculators can vary greatly, so understanding your probable needs is quite important.

Insurance Company Ratings

Insurance companies are rated by several sources. A.M. Best, Standard and Poor’s, Moody's and other ratings services are available. You should be certain to ask for the ratings of any company if a representative suggests purchasing a policy from them. It is also easy to go online and do a search for "insurance company ratings" and obtain the actual ratings for most financial services companies.

Donate Now
Imagination Library
Youh Foundation
Make a Difference
Mailing List
CF standards
How to Give
Video Page

Washington County
Community Foundation

1707 North Shelby Street
Salem, Indiana 47167
Phone: 812-883-7334

vimeo logo