On March 28, 2023, the Internal Revenue Service (IRS) published a letter as part of its "Dirty Dozen series" warning taxpayers not to trust tax advice on social media. There are multiple claims on social media that filing certain IRS forms or documents allow a taxpayer to avoid reporting his or her actual income and receive a larger refund.

"There are many ways to get good tax information, including from a trusted tax professional, tax software and IRS.gov. But people should be incredibly wary about following advice being shared on social media," stated IRS Commissioner Danny Werfel. "The IRS continues to see a lot of inaccurate information that could get well-meaning taxpayers in trouble. People should remember that there is no secret way to fill out a form and simply get a larger refund that they are not entitled to. Remember, if it sounds too good to be true, it probably is."

Each year the IRS convenes a Security Summit that includes state tax agencies and many tax preparers. The Security Summit attempts to protect taxpayers by warning them against using strategies that lead to tax fraud.

1. Fraudulent Form Filing or False Advice — Social media can provide a vast diversity of information. However, some of the false advice will cause good taxpayers to potentially break the law. There are numerous tactics promoted by fraudsters and scammers. Many of these tax schemes will have catchy hashtags such as "#taxadvice" or "#taxtips." There are multiple strategies promoted that are not legitimate.
2. IRS Form 8944 Fraud — IRS Form 8944, Preparer e-file Hardship Waiver Request is intended to be used by qualified tax return preparers. It enables them to request a waiver for a taxpayer so the tax return may be filed on paper rather than through an electronic method. However, fraudsters claim that anyone can use this form to avoid paying taxes. The IRS warns taxpayers that filing a form with false or fraudulent information can lead to civil or even criminal penalties.
3. Form W-2 Fraud — Another scheme promoted widely on social media is to encourage taxpayers to manually complete IRS Form W-2, Wage and Tax Statement. The taxpayer creates a phantom employer, reports a large income and a substantial withholding amount. Next, the taxpayer files his or her return and claims a large refund. However, the IRS works directly with payroll companies, most large employers and the Social Security Administration. The IRS verifies W-2 information and is equipped to discover fraudulent forms.

The IRS warns taxpayers to be on the lookout for claims that are not likely to be true. The best way to learn how to properly fill out forms is to go to IRS.gov and search for information on the topic.

If a taxpayer discovers an abusive tax scheme, he or she should use IRS Form 14242-Report Suspected Abusive Tax Promotions or Preparers. You can mail this to IRS Lead Development Center, Stop MS5040, 24000 Avila Road, Laguna Niguel, CA 92677-3405.

Editor's Note: An estimated 79% of millennials or Gen Z members receive financial advice through social media. The "#taxadvice" or "#taxtips" hashtags have trended widely on TikTok and Twitter. These "advisors" claim to offer high-quality guidance from CPAs and other tax preparers. Taxpayers should be careful not to fall for these scams and only follow advice from trusted sources.

I am interested in donating my body to science after I die. What can you tell me about body donations and how do I start the process?

If you are looking to help the medical community, donating your body is an option to consider. While whole-body donations might not be for everyone based on cultural, personal or religious convictions, it can help advance science and eliminate funeral and burial costs.

Body Donations

It is estimated that approximately 20,000 people donate their whole body each year to medical facilities to be used in research projects, anatomy lessons and surgical training.

After completing their research, these facilities use environmentally friendly cremation procedures and intern the ashes in a local cemetery or return them to family. Bodies are usually cremated within one to three years of donation. Many facilities also hold an annual ceremony to thank donors and their families.

A donation of your body to science will have the benefit of avoiding funeral and burial costs. Facilities that accept body donations have policies that prohibit payment for the use of bodies. These policies are in accordance with federal and state laws.

Here are some other things that are important to consider that will help you determine whether whole-body donation is right for you:

Donation denial: Most body donation programs will not accept bodies over a certain weight or those that have infectious diseases like hepatitis, tuberculosis, HIV or MRSA. Bodies that have suffered extensive trauma will also not be accepted.

Organ donation: Most medical school programs require that you donate your whole body in its entirety. If you decide to donate specific organs (except for your corneas), you will likely not qualify to be a whole-body donor.

Religious considerations: Many religions permit individuals to donate both their full body and organs. If you are unsure or want further guidance, you should consult with your religious or spiritual advisor.

Special requests: Most programs will not allow you to donate your body for a specific purpose. After you give them your body, they will decide how to use it.

Memorial options: Most programs require the immediate transport of the body after death, so there is not an option for open casket at the funeral. If your family wants a memorial service, they can have one without the body. Some programs offer memorial services at their facility at a later date without the remains.

Body transporting: Most programs will be responsible for arranging and paying for transporting your body to their facility if you are within a certain distance. However, the program accepting your body may charge a transportation fee if the body is outside their area. In some cases, your family may be required to pay out of pocket to have your body transported but there may be partial reimbursement for the cost.

How to Proceed

If you want to donate your body, it is best to make arrangements in advance with a body donation program in your area. Most programs are offered through university-affiliated medical schools. To find one near you, the University of Florida College of Medicine's Anatomical Board maintains a website with a list of nationwide programs with contact information. If you do not have Internet access, you can get help by calling the whole-body donation referral service during business hours at 800-727-0700.

In addition to medical schools, there are private organizations that accept whole body donations. Some of these organizations may also allow organ and tissue donation.

Carefully research any donation organization you plan to use to ensure proper care and handling of your body. Once you locate a program in your area, carefully review how the organization handles donated bodies so that you fully understand how their program works.

Generally, to register as a donor, you must fill out consent forms, have the forms witnessed or notarized and then return the forms. If you change your mind later, you can contact the program and remove your name from their registration list. Some programs may ask that you make your withdrawal in writing.

After you have made any arrangements, you should tell your family members so they will know what to do and who to call after your death. It is also a good idea to tell your doctors so that your final wishes can be included in your medical record.

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.

On March 21, 2023, the Internal Revenue Service (IRS) published a warning to taxpayers to watch out for scammers using email or text messages. With the tax deadline of April 18 approaching, scammers are hard at work tricking taxpayers.

IRS Commissioner Danny Werfel noted, "Email and text scams are relentless, and scammers frequently use tax season as a way of tricking people. With people anxious to receive the latest information about a refund or other tax issue, scammers will regularly pose as the IRS, a state tax agency or others in the tax industry in emails and texts. People should be incredibly wary about unexpected messages like this that can be a trap, especially during filing season."

The IRS, state tax agencies and tax software companies all participate in the Security Summit. The Security Summit publishes warnings that are designed to reduce the vulnerability of taxpayers to identity theft. This warning focuses on both email and text frauds.

1. Phishing — Fraudsters will send emails to millions of taxpayers. The fraudster claims to represent the IRS, a state tax organization, a tax preparer or a financial firm. The emails may take many different forms. It may promise a phony tax refund. Another common strategy is to frighten the taxpayer by threatening false criminal charges for tax fraud if there is not an immediate response. All of these tricks are designed to enable scammers to make contact with the victim and obtain personal financial information.
2. Smishing — With the common usage of smartphones, a scammer may send millions of text messages that use similar techniques to their email tricks. The message might state, "Your account has now been put on hold," "Unusual Activity Report" or "Click For Solution." The links take the victim to the fraudster's website and an attempt is made to obtain the financial information of the taxpayer.

Scammers will use your financial information or sell it to other fraudsters who then file tax returns and claim improper tax refunds. The IRS cautions taxpayers that it generally makes an initial contact through regular mail. It states that it "will never initiate contact with taxpayers by email, text or social media regarding a bill or tax refund."

The IRS urges taxpayers to be cautious about clicking on unsolicited emails. A more sophisticated phishing strategy is to send three or four emails. After the relationship has been developed, the scammer sends the victim an email with the link that downloads malware.

Many of the latest scams include emails that claim to be from friends or family. A scammer monitors your email account to acquire information and sends an email that appears to be from someone you know. This has been an effective strategy to target both individuals and tax preparers. The final goal is always to obtain your financial information so they can file for a fraudulent refund.

An additional scam is currently popular. The scammer offers to provide "free help" in setting up an IRS Online Account. IRS Commissioner Danny Werfel noted, "Scammers are coming up with new ways all the time to try to steal information from taxpayers. An Online Account at IRS.gov can help taxpayers view important details about their tax situation. But scammers are trying to convince people they need help setting up an account. In reality, no help is needed. This is just a scam to obtain valuable and sensitive tax information that scammers will used to try stealing a refund."

If you are approached by someone who wants to provide help in setting up an IRS Online account at IRS.gov, you should use the IRS website yourself to set up the account. Do not allow a third party to help you set up your IRS Online Account.

If you think you received an email or text from a scammer, you can send the email or a copy of the text to phishing@IRS.gov. You should also include the caller ID, his or her email address or phone number, the date, time, and the number that receives a text message.

There is a "Report Phishing and Online Scams" page at IRS.gov with additional details.

I have been taking care of my elderly parent for over a year and it is affecting my finances since I can only work part-time. Are there any resources that can help family caregivers receive financial support?

Caring for an elderly parent can be challenging in many ways, but it can be financially difficult if you must miss work to provide care. Fortunately, there are several government programs and other tips that may help you receive financial assistance while you care for your parent. Here are some options to explore.

Medicaid Assistance

All 50 states and the District of Columbia offer self-directed Medicaid services for long-term care. These programs let states approve waivers to allow income-qualified individuals to manage their own long-term home-care services. In some states, that can include hiring a family member to provide care.

Benefits, coverage, eligibility and rules differ from state to state. Program names also vary: "consumer directed care" in one state, may be called "participant-directed services," "in-home supportive services" or "cash and counseling" in another. Contact your state Medicaid program to ask about its options and requirements.

Veterans Benefits

If your parent is a military veteran, there are several VA programs. The eligibility criteria will vary, but these programs provide financial assistance to family caregivers, including:

• Veteran-Directed Care: This program is available in most states and provides a needs-based monthly budget for long-term care services. The veteran manages their own budget and hires their own caregivers, which many include family members. (VA.gov/geriatrics/pages/Veteran-Directed_Care.asp)
• VA Aid & Attendance or Housebound Benefits: This program provides a monthly payment to veterans and their surviving spouses who receive a VA pension and who either need assistance with activities of daily living (i.e., bathing, dressing, going to the bathroom), or are housebound. (VA.gov/pension/aid-attendance-housebound)
• Program of Comprehensive Assistance for Family Caregivers: This program provides a monthly stipend to family members who serve as caregivers for veterans who need assistance with daily living activities resulting from an injury or illness sustained while in the line of duty. (Caregiver.va.gov/support/support_benefits.asp)

Other Alternatives

Find out if your parent has long-term care insurance that covers in-home care. Long-term care insurance pays primarily for assistance with everyday tasks and does not require a licensed health care professional to provide the services. Some policies will pay benefits for care rendered in an in-home setting. Contact your parent's insurance provider to see if you are eligible to make a claim.

Some additional options for financial support include having your parent pay you for the care you provide if they are financially able to do so. Another option is to have other family members provide help. Check with your family members to see if they would be able to help take care of your parent and allow you to work beyond part-time. Alternatively, your family may be able to pay for your time or other caregivers.

If your family agrees to offer financial support, consider drafting a written contract that details the terms of your work and payment arrangements. A contract sets out everyone's expectations and will also help avoid potential problems should your parent ever need to apply for Medicaid for nursing home care.

Tax Credits

There are also tax credits and deductions you may be eligible for as your parent's caregiver. For example, if your parent lives with you and you are paying at least half of your parent's living expenses, and your parent's gross income was less than $4,400 in 2022, not counting Social Security, you can claim your parent as a dependent on your taxes and potentially receive a maximum of $500 as a tax credit.

If you cannot claim your parent as a dependent, you may still be able to get a tax deduction if you are paying more than half of their living expenses including medical and long-term care costs, and those expenses exceed 7.5% of your adjusted gross income. You can include your own medical expenses in calculating the total. To see which medical expenses you can deduct, see IRS Publication 502 at IRS.gov/pub/irs-pdf/p502.pdf.

Furthermore, if you are paying for in-home care or adult day care for your parent to allow you to work, you may qualify for the Dependent Care Tax Credit. Depending on your income, this credit may be worth as much as $1,050. To claim this credit, you will need to fill out IRS Form 2441 (IRS.gov/pub/irs-pdf/f2441.pdf) when you file your federal return.

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.

As the tax season moves into high gear, the Internal Revenue Service (IRS) published a series of tax tips for stress-free filing. The IRS asks taxpayers to keep these tips in mind to make certain that their taxes are done correctly and they receive prompt refunds.

1. Good Records — Taxpayers should gather all of their records. A key to easy tax filing is maintaining good records. These records enable taxpayers to take appropriate deductions and credits.

2. Use IRS.gov — The IRS website, IRS.gov, is available around-the-clock. It is the fastest way to benefit from assistance. You can use IRS.gov to file your tax return, pay taxes, receive information about your returns or find answers to many different tax questions. The IRS Services Guide on this website explains the best ways to obtain assistance from the IRS.

3. Helpful Online Tools — IRS.gov includes a wealth of helpful tools. If you have tax questions, use the Interactive Tax Assistant to obtain quick answers. The IRS has upgraded this tool and it generally provides the same answers that would be available over the phone.

4. Reputable Preparer — Over half of taxpayers use a CPA, attorney, enrolled agent or other preparer. You can go to IRS.gov/chooseataxpro and find many qualified preparers. The IRS Directory of Federal Tax Return Preparers also lists professionals and their credentials for filing returns.

5. File Electronic Returns — The IRS Free File program will help you calculate your earned income tax credit, child and dependent care credit and recovery rebate credit. Online software, MilTax, is available for members of the military and certain Department of Defense veterans. There are also limited Free File options available in Spanish.

6. Direct Deposit — By filing an electronic return and choosing direct deposit, you can ensure both an accurate tax return and a rapid refund.

7. Report All Income — Income from all sources is taxable. This includes your IRS Forms W-2, Wage and Tax Statements, IRS Forms 1099, “gig economy” income, tips and other income. All income from any source must be reported. This is true even if you do not receive a formal statement for that income.

8. Unemployment Benefits — If you received unemployment benefits, these amounts are reportable as taxable income on your IRS Form 1040.

9. Review to Avoid Errors — Take extra time to review your tax return. Any taxpayer should understand the basic income, deductions and tax amounts. It is important that you file a complete and accurate return. Your electronic filing is generally the most accurate way to eliminate clerical or math errors. Check to make certain all names and Social Security numbers are correct. You also must recheck your bank account and routing numbers for direct deposit of your refund.

I currently have high Medicare premium surcharges due to my past income. My income has dropped since I retired and I can no longer afford the premium surcharges. Is there a way to appeal my Medicare premium surcharges?

If you are paying higher premiums for Medicare Part B and Part D and you have experienced a life-changing event that affects your adjusted gross income (AGI), you should contact Social Security. After verifying your change in income, Social Security may make an adjustment to your premium which can reduce your monthly cost. Here is what you should know.

Medicare Surcharges

Many retirees do not realize that monthly premiums for Medicare Part B (coverage for doctor's services and outpatient care) and Part D (prescription drug coverage) are based on your modified AGI from two years earlier. To determine your 2023 Medicare premium, Social Security uses the income from your 2021 tax return. In the intervening two years, however, your life can change. Sometimes, those changes are enough to convince Social Security that your Medicare premium should be reduced.

Part B's standard monthly premium in 2023 is $164.90 for individuals earning $97,000 or less or joint filers earning $194,000 or less. Anyone whose income exceeds the thresholds pays a higher premium, known as an Income-Related Monthly Adjustment Amount (IRMAA).

The higher monthly premiums rise steadily from $230.80 to $560.50 through five income tiers. The same tiers apply to IRMAAs for Medicare Part D, with enrollees paying an extra $12.20 to $76.40 per month depending on their income.

About 7% of higher-income Medicare beneficiaries pay a surcharge on their monthly Part B or Part D premiums.

Reasons for Appealing

In certain situations, outlined below, Social Security will recalculate your premiums – known as a redetermination – for Part B and Part D, particularly if the agency based the cost on a tax return that was later amended.

Otherwise, there are seven life-changing events that qualify for a redetermination if they impact your income, including the following: marriage, death of a spouse, divorce or annulment, reduced work hours or retirement, involuntary loss of income-producing property, the loss or reduction of some types of pension income and an employer settlement payment due to the employer's bankruptcy or reorganization.

How to File a Claim

To request Social Security for a redetermination, you must complete Form SSA-44 (SSA.gov/forms/ssa-44-ext.pdf) and include supporting documents, such as the death certificate for a spouse or a letter from a former employer stating that you are now retired. If you filed your federal income tax return for the year that your income was reduced, you will also need to provide a signed copy.

A decision usually takes a few weeks. If your request is approved, Social Security will refund you for the additional premiums paid by adding it to your next benefit payment. If you are on Medicare but have not started collecting Social Security, you receive a credit on a future invoice.

If your request for a redetermination is denied, there are three levels of appeals available to you: the Office of Medicare Hearings and Appeals, the Medicare Appeals Council and the federal district court where you reside.

For more information on the premium rules for high-income beneficiaries see SSA.gov/benefits/medicare/medicare-p

My 74-year-old parent receives a handful of unwanted telemarketing and robocalls and has been cheated out of hundreds of dollars. What tips can you provide to help protect individuals from scam calls?

Scammers are always looking for new ways to trick individuals out of money. In the U.S., phone calls remain the primary way swindlers take advantage of older victims.

The Federal Trade Commission recently found that 24% of adults over age 60 who reported losing money to a scam in 2021 said it started with a phone call – the largest percentage of any method including email, text and mail. To help protect against robocall scams, telemarketing and spam calls, here are some tips and tools you can employ.

Register Numbers

If your parent has not already done so, a good first step in limiting at least some unwanted calls is to make sure home and cell phone numbers are registered with the National Do Not Call Registry. While this will not stop fraudulent scam calls, it will stop unwanted calls from legitimate businesses who are trying to sell something. To sign up, call 888-382-1222 from the phone number you want to register, or you can do it online at DoNotCall.gov.

Cell Phone Protection

Most wireless providers today offer good tools and apps for stopping scam calls and texts. To find out which apps are available within your network, use your preferred online search engine to research which applications work best for your device and service provider.

For additional tools, download a reputable spam-blocking app onto the phone. The apps may be offered by the wireless service provider and can be found in the Apple and Google App store. These apps are free to use, but most carriers will also offer upgraded services that you can get for a small monthly fee. If, however, your parent uses a regional or small wireless carrier that does not offer scam/robocall protection, you can use a free third-party app.

Built-In Call Blockers

Many smartphones today also offer built-in tools that can block spam calls. Some of the newer smartphones make it possible for your parent to completely silence all unknown callers who are not in their contacts list in the phone "Settings."

Silencing all unknown callers is an extreme solution that will stop all unknown callers, but your parent runs the risk of missing out on a few legitimate calls as well. However, unknown callers do have the option to leave a voice message and their calls will appear in the recent calls list. Your parent can also add any number to their contact list to let them through in the future and can block specific reoccurring spam call numbers manually.

Home Landline Protection

To stop scam calls on your parent's home phone, set up the "anonymous call rejection" option. This is a free feature available by most telephone companies, however some may charge a fee. It allows you to screen out calls from callers who have blocked their caller ID information – a favorite tactic of telemarketers.

Call your parent's telephone service provider to find out if they offer this tool, and if so, what you need to do to enable it. If they do not offer it, find out what other call blocking options they do offer.

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.

I have had several health issues over the past few years. Someone recently suggested that my thyroid might be causing some of my health problems. What are some common symptoms of thyroid dysfunction?

If your thyroid gland is not properly functioning, it can cause many health issues that are difficult to detect because symptoms often resemble other age-related health problems. It is estimated that as many as 30 million Americans have some form of thyroid disorder but more than half are not aware of their condition.

What to Know

The thyroid is a small butterfly-shaped gland located at the base of your neck that has a vital job. It produces hormones, T3 and T4, which help regulate many of your body's activities from how quickly you burn calories to how fast your heart beats. It also influences the function of the brain, liver, kidneys and skin.

If the thyroid gland is underactive and does not produce enough thyroid hormones, it causes the body's systems to slow down. If it is overactive, it has the opposite effect and speeds up the body's processes.

The most common thyroid disorder in older adults is an underactive thyroid, which is known as hypothyroidism. The symptoms of hypothyroidism vary but may include fatigue, unexplained weight gain, increased sensitivity to cold, constipation, joint pain, puffiness in the face, hoarseness, thinning hair, muscle stiffness, dry skin and depression. Some patients may also develop an enlarged thyroid (goiter) at the base of the neck. Older adults with hypothyroidism can also experience memory impairment, loss of appetite, weight loss, falls or incontinence.

For those with an overactive thyroid or hyperthyroidism, symptoms include a rapid heart rate, anxiety, irritability, fatigue, insomnia, increased appetite, weight loss, tremors of the hand, frequent bowel movements, sweating and an enlarged thyroid gland. Too much thyroid hormone can also cause atrial fibrillation, an increase in blood pressure or a decrease in bone density which increases the risk of osteoporosis.

Women who have a family history of the disease have the greatest risk of developing thyroid disorders. Other factors that can trigger thyroid problems include autoimmune diseases like Hashimoto's or Graves' disease, thyroid surgery, radiation treatments to the neck or upper chest and certain medications including interferon alpha, interleukin-2, amiodarone and lithium.

Get Tested

If you are experiencing any symptoms or notice a lump in the base of your neck, ask your doctor to check your thyroid levels. The TSH (thyroid-stimulating hormone) blood test is used to diagnose thyroid disorders. If the initial test result is high, your doctor may order additional blood tests to confirm your levels of T3 or T4.

If you are diagnosed with a thyroid problem, it is easily treated. Standard treatment for hypothyroidism involves daily use of the synthetic thyroid hormone levothyroxine (Levothroid, Synthroid and others). This is an oral medication that restores adequate hormone levels for many individuals.

Treatment for hyperthyroidism can include antithyroid medications such as methimazole and propylthiouracil. It works by blocking the production of new thyroid hormones. Another treatment option is radioactive iodine (RAI). RAI is taken orally and destroys the overactive thyroid cells and causes the gland to shrink. Because RAI leaves the thyroid unable to produce any hormone, a side effect is hypothyroidism. This condition can be easily treated with thyroid medication.

For more information on thyroid disorders, visit the National Institute of Diabetes and Digestive and Kidney Diseases at https://www.niddk.nih.gov/health-information/endocrine-diseases.

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.

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 $25,000 of income over and above the amount paid by retirement funds, Social Security and other earnings, then insurance equal to $500,000 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 family 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 $25,000, then the total insurance would be $700,000. This amount includes $200,000 for expenses and $500,000 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 all of their 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.

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 is determining 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 husband and wife 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 a more reasonable premium because two persons must pass away before the death benefit is paid. It is particularly useful for providing funds to pay for 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's 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. 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, Weiss, 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.