Scared To Death Of Life Insurance

Choosing the amount of coverage is hard. The trick is to think like an economist

Life insurance may be the most badly purchased financial product. Some people, unwilling to face the thought of death, never buy coverage at all. Others feel guilty about the prospect of leaving loved ones behind and buy too much. Even those who put their emotions aside tend to fall back on oft-repeated and oft-wrong rules of thumb, such as buying a policy worth five times your annual salary.


Choosing the right amount of life insurance is no easy matter. Even most insurance agents and financial planners rely on rules of thumb or unsophisticated worksheets -- or put the onus on clients to decide how much insurance to carry. Fortunately, understanding a few economic principles will go a long way toward helping you make a smart decision.

According to economists, your family's financial goal should be to enjoy the highest standard of living possible over a lifetime. That may mean borrowing when you're young and repaying the loans as you age and earn more. Given your total lifetime income, you don't want to suffer in youth and live high on the hog in old age, or vice versa.

That's where life insurance comes in. If you die, the death benefit to your survivors should be precisely large enough so they enjoy the same living standard as they did while you were alive. Life insurance protects your family if you die young. It goes hand in hand with investing for retirement, which protects you against the opposite risk: that you and your spouse will outlive your savings.

The focus on smoothing consumption over a lifetime leads to some counterintuitive conclusions. It indicates that young people are the most likely to be underinsured, that secondary earners and nonworking spouses are the most likely to be overinsured, and that most people should reduce the amount of life insurance they carry as they approach retirement. "When it comes to buying life insurance, economic man is making major mistakes," economists Jagadeesh Gokhale, a senior fellow at the Cato Institute, and Laurence Kotlikoff of Boston University wrote in a 2002 paper.

Gokhale and Kotlikoff have done more than chastise people for bad decisions. They have distilled their research into a sophisticated program that digests scads of personal data and spits out a multiyear financial plan with annual targets for spending, saving, and insurance coverage. The calculations are so complicated that even a state-of-the-art PC takes 15 seconds to produce a result. The $149 program, ESPlanner, is sold by a company that Kotlikoff helped found, Economic Security Planning Inc. in Lexington, Mass. (esplanner.com).

Even if you don't buy the program, you can learn a lot by looking at life insurance through an economic lens. Start with what economic theory says about the young. Many people who are starting families buy a little life insurance coverage, then add more as their incomes increase and they can afford more protection. That's the opposite of what you should do. You want the most coverage when you have just started a family, because the insurance has to cover decades of future earnings that will be lost if you die. As you get older, you can afford to decrease coverage because you have fewer years of earnings to make up for, your spouse has more assets to live off of and fewer years of life remaining, and your children are closer to being on their own.

YOUNG IDEA
Those factors have big implications for what kind of insurance is appropriate. Insurance agents often advocate cash-value policies because they double as investment vehicles. With simple term insurance, they argue, you're left with nothing to show for your years of premium payments. That's true. But the only way most young people can afford to buy as much life insurance as economic theory says they need is to opt for term policies that pay a death benefit and nothing more. A 25-year-old can buy a $2 million, 30-year policy from a reputable insurer for about $1,600 a year. That same premium would buy a death benefit of only a quarter as much -- $500,000 -- if it were put into a variable universal life policy that has an investment feature. Younger people should place protecting future income ahead of piling up savings, but many succumb to agents' sales pitches for cash-value policies. According to the latest available numbers from the American Council of Life Insurers, whole, universal, and variable life policies account for 84% of premiums, vs. only 16% for term policies.

Thinking like an economist can sometimes lead you to buy less insurance, not more. In ESPlanner's software, secondary earners often require little or no life insurance, even taking into account that the secondary earner (most often the wife) often provides essential services that must be replaced, such as child care. Why? Mainly because child care is a relatively short-term issue. When the secondary earner is gone, the need to support that person until, say, age 95 is gone, too.

If you want to follow economists' advice and reduce your coverage as you approach retirement, inflation will take care of part of your problem by eroding the real value of your death benefit. A $2 million policy will be worth just $1.1 million in today's dollars in 20 years, assuming 3% inflation. Also, some insurers offer policies that have level premiums but declining coverage over time.

A good way to shrink your coverage over time is to buy policies of different durations and layer them. If you want to start with $1.5 million in coverage and then have it decline, buy three $500,000 policies. Make the first expire after 10 years, the second after 20, and the third after 30 years. That will give you a smoothly declining amount of coverage as you glide toward retirement.

No one enjoys buying life insurance. But if you think like an economist, you can come away feeling like you've at least correctly calculated the odds.

Retiring in Indonesia

The warm climes of Indonesia have attracted the attention of retirees from colder climes. While many come for a one-month stay on a tourist visa, there is now a way to stay longer, on a retirement visa. Other important issues related to retirement are Purchasing Property, Indonesian income tax and Medical Care.
Retirement Visas
The Immigration Department has issued the long-awaited revisions to regulations that allow the granting of temporary stay permits for those over 55 years of age. This facility to provide renewable stay permits of one year's duration was originally announced in 1998 (Keputusan Menteri Kehakiman No. M.04-IZ.01.02 tahun 1998). In the first few years after the regulations were issued few retirees were actually able to actually get the visa due to the strict requirements. Revisions to the regulations in April 2002 (decree by the General Director of Immigration in law No. F. 492-UM.01.10, April 18, 2002.) brought the requirements within closer reach of the financial capabilities of most retirees.

The retirement visa facility is intended to assist those wishing to spend their retirement in Indonesia and has the following requirements:

* applicant is 55 years of age or older,
* possess a passport or travel documents with more than 18 months remaining validity,
* submit full identification (copy of all passport pages) and four passport photos 4 x 6 cm,
* Curriculum vitae,
* statement from Pension Fund Foundation or Bank from the country of origin (or Indonesia) of funds available, minimum of US$1,500 per month, to provide the applicant living expenses during the proposed stay in Indonesia (Total US$18,000 per year) (VERY stiff compared to other countries requirements - US$600/month in Panama),
* proof of medical/health Insurance, death insurance, and personal liability insurance in country of origin or Indonesia,
* Statement of living accommodation in Indonesia. Minimum cost of US$35,000 if purchased house/apartment or, a minimum rental cost of US$500/month in Jakarta, Bandung, and Bali; US$300/month for other cities in Java Island, Batam, and Medan, and other cities a minimum US$ 200/month.) in the tourist areas according to the regulations,
* Statement to declare employment of an Indonesian maid servant whilst living in Indonesia,
* Payment of Immigration Fee based on effective regulations,
* Sponsor letter from the appointed travel agency, costs to be paid by applicant,
* Statement agreeing not to engage in business activities or work for a living. You MAY NOT WORK in Indonesia on this visa!
* You may stay in Indonesia for one year on this visa, extendable for up to a maximum stay of five years.

You can enter first on a senior citizen tourist visa and then after a month apply for the limited stay permit (KITAS).

Appointed Indonesian Travel Agencies act as a coordinators for seniors and must sponsor all those applying for this visa facility. One of these appointed agents is Rami Formalities.

Be advised that even on a retirement visa, you will be liable to pay Indonesian personal income tax, taxed at the rate of 35% for incomes over Rp 200 million/year ($20,000).
KITAP for Senior Citizens

After extending the limited stay permit for five times (5 years), foreign retirees can apply for an unlimited stay permit visa (KITAP) through a Senior Foreign Tourist Travel Bureau, as follows:

* Application letter and guarantee from tourist travel bureau as a sponsor.
* License (SIUP) and tax number (NPWP) of the travel bureau.
* Appointment letter of travel bureau to handle the Foreign Senior Tourist.
* Curriculum vitae.
* Original and copy of valid passport
* Four photographs, size 2x3 cm.
* Statement of accounts, issued by Pension Fund Institution or bank/s declaring funds of not less than US$1,500/month are available to finance his/her stay in Indonesia.
* Statement/evidence verifying actual stay at available accommodation facilities through the purchase or rental at minimum specified rates.
* Statement to declare employment of Indonesian maid-servant during his/her stay in Indonesia.
* The most recent, still valid, limited stay permit visa.

Naturalization for Senior Citizens

After obtaining an unlimited stay permit (KITAP), citizenship or naturalization can be sought in a process requiring one year, based on the qualifications of the retiree.
Personal Accounts of the application process:

The saga of one of the successful applications for a retirement visa:

I started the process with first getting the implementation procedure (Petunjuk Pelaksanaan=juklak) that was issued by the Director General of Immigration on March 2000.

With that paper I saw the officer in charge of KITAS at the immigration office on Jalan Surapati, Bandung. The man first said, that he did not have the JUKLAK. I keep insisting that the document exists. Finally he took it out of his drawer and said : “I have the document. I read it, but I have never used the new rule before. Get your stuff together and we'll see what can be done. Anyhow, since you are leaving for LA, get yourself a visa sosial/budaya. We will go from there.”

These are the papers/documents I put together:

* Copy of my retirement statement from the retirement office in the US
* Copy of my health and hospital insurance coverage
* Copy of my life insurance policy
* Copy of my house rental contract
* Statement that I employ two Indonesians
* My abbreviated curriculum vitae
* Sponsorship and guarantee statement from my brother (Indonesian citizen)
* Sponsorship and activity statement of a Non-Profit Organization where I help for free

At the Surapati office I was told that I had everything I needed. Three days later, I was told to be at the immigration office. They gave a big envelope and told me to go with the envelope to the provincial immigration office at Jalan Jakarta. After waiting for half an hour I was called in. I handed the envelope to the guy behind the desk. He looked at the papers in the envelope and told me : “You can NOT get a KITAS yet. You have to be here, in Indonesia, four months continuously. Come back in four months.”

I went back to Jalan Surapati and was told : OK. We will extend your Sosial Budaya visa, three or four times.

After the fourth extension, I was told by the Surapati office that my papers are ready to be delivered to Jalan Jakarta. I was also told that after the Jalan Jakarta office , all the papers will be sent to Jakarta, first to the Justice Department and then to the Director General of Immigration. After everybody had signed in Jakarta, my papers would be sent back to Bandung, to the Surapati office. I almost gave up hope, ... but, a friend at the Surapati office came to me and said: “Don't worry, I'll see to it that the papers go to all those offices. The approval will be back here in two weeks.”

Ten days later I got a call :“Your KITAS request has been approved. We need to take your finger prints and signature.”

The fingerprinting took two minutes. My passport had to be properly stamped and signed off and the KITAS had to be typed, stamped and signed off. All that took two hours. When I looked at my KITAS, I noticed it was only for six months. I asked the man in charge: Why only for six months, why not for a year?

The reply was: Come back here in five months, then I will extend it for a full year.

That's the whole story. I hope this can be of some help for those who are interested in obtaining a retirement visa.”

To help avoid these hassles of trying to work it out yourself, use a qualified appointed agent like Rami Formalities.
Another person's experience:

I have to say that my personal experience in obtaining the special visa for retired foreigners who want to reside in this beautiful country was relatively easy. I first contacted an agency in Bali on the internet in early January 2005. They are one of the one’s appointed by the government to handle the special visa. I mailed them the following documents:

Copy of passport
Copy of marriage license
Letter stating I’d employ a maid
Letter stating I wouldn’t be working in the country
Letter stating I was renting a house (includes owner’s name, address of house, amount of rent )
Copy of health insurance policy and life insurance policy (these I bought in Indonesia from local insurance companies, cost 850,000 and 900,000 per year )
Copy of bank account statement and a couple of mutual funds (they don’t seem to care too much about this—just have to show something)
Some photographs with red background 4 X 6 cm 10 pcs 3 X 4 cm 4 pcs 2 X 3 cm 4 pcs
Liability insurance: this cost US$ 153.00 paid to the Bali agency. They made the arrangements.

After the agency received these documents, they sent them to the main Imigrasi office in Jakarta. After three weeks, everything was approved, the agency then emailed me the document to hand carry to the Indonesian Embassy in Singapore. (One has to tell the agency what Embassy outside the country they will be using) My wife and I flew to Singapore. I met a special agent there who picked up my passport, passport photos, and the emailed approval document, from me at the hotel. (his name and number was provided by the agency. His fee for this was about US$ 300.00 for the two passports. You can go to the embassy yourself, but it takes about 3-4 days longer) The next day, he brought back my passport with the correct stamp to enter Indonesia. We entered Indonesia (no fee at the airport), and had to report to the agency in Bali within 7 days. They took our passports and we signed some documents. They called us the next week and then took us personally to Imigrasi where we filled out the KITAS form and signed some papers. We were fingerprinted and had our pictures taken for the KITAS. We went home and the following week our passports and KITAS for the special retirement visa arrived at our house by courier.

Cost. Rp 6.000.000 for those going to reside in Bali, half up front and half after KITAS arrives. The cost is more if one plans to reside outside Bali, e.g. 8.000.000 for Surabaya, 12.000.000 for Manado, as the agent has to fly to the city to make arrangement with Imigrasi for those other areas.

Okay, the three weeks was from the time I turned in the documents to the agency to the time we received approval from Imigrasi in Jakarta, so the entire process was about six weeks to receive the KITAS at our doorstep. I am helping out the agency in Bali search for foreign expats who want to retire here. They have an employee who works on commission and has already successfully processed many applicants. She has therefore requested that I first be contacted and then forward the names of prospective clients to her.

The KITAS is good for one year and is extendable. After the year was up, I went with an employee of the agency to Imigrasi with passports, the old KITAS, and some more photos. We spent about 30 minutes there, got our new KITAS, and were on our way. The fee has to be paid every year, Rp 6.000.000 for Bali, etc. and the insurance kept up to date.

Let’s discuss the issue of Indonesian personal income tax, taxed at the rate of 35% for incomes over Rp 200 million/year ($20,000). I went over this several times with the agency, figuring they should have all the correct information regarding this matter. They keep telling me and others that the Indonesian Government does not levy a tax on retirement income (which the retiree is reporting) for retirees living in Indonesia. I haven’t inquired any further in this matter and the agency says not to give it a second thought.

I hope the above will be of some us to you, your wonderful expat site for Indonesia, and some relief for those foreigners wanting to retire here in this lovely country who meet the requirements.
Interesting Retirement-related Sites

Retire Asia

Certificate of Insurance

This is a group accident policy between Zurich American Insurance Company and the University of Wisconsin Board of Regents for University of Wisconsin System employees. The plan is self-administered by the University.

• Zurich Travel Assist offers comprehensive, world travel service, when you travel 100 miles or more from home. View the benefit summary or the complete Zurich Travel Assist brochure.

• Zurich Travel Assist provides a familiar standard of care in an unfamiliar place, putting you in contact with resources to get the medical, personal, informational and legal help needed for vacation or business travel.

• Your family members are eligible, too, provided you carry AD&D Family Plan coverage.
Eligibility

* University employees eligible for the State of Wisconsin Group Health Insurance Plan are eligible for AD&D.

Enrollment

* You may enroll, change or cancel your coverage at anytime by filing an Enrollment and Change Form with your campus benefits office.

* Coverage is effective on the first of the month following the date you submit your application to your campus benefits office. If you file on the first day of the month, coverage is effective that day.

* Employee Only or Family Plan coverage is available. By electing the Family Plan, you are covering your spouse or domestic partner and dependent children.

* To enroll domestic partners, you will need to complete an Affidavit of Domestic Partnership attesting to the relationship. Contact your Benefits Office for more information.

* Rehired annuitants who are receiving a Wisconsin Retirement System annuity are excluded from enrollment.

Coverage

* You may select coverage (Principal Sum) of $25,000, $50,000, $100,000, $150,000, $200,000 or $250,000.
* Coverage in excess of $200,000 may not exceed 10 times your annual salary.
* Under the Family Plan, dependent family members are covered at a percentage of your Principal Sum amount.
* At age 70, your coverage reduces to a percentage of the Principal Sum.
* This insurance does not cover any loss resulting from intoxication or while under the influence of alcohol or controlled substance unless administered on the advice of a physician and taken in the prescribed dosage.
* For limitations and exclusions, please refer to the certificate.

Premium

* Premium cost is based on the type of plan and Principal Sum you select.
* The University does not contribute toward the premium.
* Premiums are paid one month in advance.

Program Features

o This insurance will pay benefits according to the Schedule of Coverage
o Education and training benefits for your spouse and dependent children if you are enrolled in the Family Plan at the time of your death.
o If you and your spouse suffer loss of life as result of a common accident while enrolled in the Family Plan, your spouse's coverage is equal to yours, to a combined maximum of $250,000
o A monthly payment for your spouse, in addition to the Principal Sum for the year following your death, if you select the Family Plan.
o If you become permanently and totally disabled within 180 days of an injury and conditions are met, you may be eligible for a Principal Sum payment.
o Special Air Ambulance coverage extension is available at additional cost for employees who ride on or operate the university air ambulance.
o A person covered in the plan may apply for pilot coverage.
o Continuation of insurance in the group plan is available at a reduced level of coverage for those retiring from the University.
o Conversion of coverage to an individual plan with the insurance company is available for those under age 70 who terminate employment or end an eligible position.
o Zurich Travel Assist puts you in touch with a global network of providers that can address medical, legal, in formational and personal assistance needs when traveling 100 or more miles away from home.
FAMILY PLAN

If the Family Plan is elected, dependent family members will be covered by the following amounts:

Spouse:
The spouse's coverage would be 50% of the Principal Sum, provided there are no covered children at the time. If there were covered children, the spouse's coverage would be 45% of the Principal Sum.

Children:
Each dependent child would be covered for 10% of the Principal Sum if there were a covered spouse, subject to a maximum of $25,000. If there were no covered spouse, each child's coverage would be 20% of the Principal Sum, subject to a maximum of $37,500.
COVERAGE FOR AGE 70 or OLDER

At age 70 the Principal Sum reduces to a percentage of the Principal Sum available prior to age 70. For example:
Age 70-74 65%
Age 75-79 45%
Age 80-84 30%
Age 85 and over 15%
SCHEDULE OF COVERAGE
FOR LOSS OF

AMOUNT
Life The Principal Sum
Both hands or feet, sight of both eyes The Principal Sum
One hand or foot and sight of one eye The Principal Sum
One hand and one foot The Principal Sum
Speech and hearing The Principal Sum
One hand or foot or sight of one eye One-half Principal Sum
Speech or hearing One-half Principal Sum
Thumb and index finger of same hand One-quarter Principal Sum


The covered loss must occur within 365 days of the accident.

In the event the covered employee, their spouse or child is not found within a year of the accident, provided the occurrence was under circumstances that would otherwise be covered, it will be assumed the lost individual has sustained loss of life.