We could begin this article by saying, “Normally, life insurance isn’t exactly a frequently-discussed topic in most households” but, of the many adjectives that come to mind regarding these last couple of years, “normal” didn’t - and couldn’t, make the list. It’s just not normal. For instance, internet search traffic for life insurance is at an all-time high! Americans, one million and counting - have already died from Covid-19. People are definitely thinking about life insurance these days.
It’s not uncommon for people to have made the mistake of thinking they don’t need life insurance. It can wait, carpe diem! However, the longer you wait, the higher your premiums may be. Or worse, you and your family may suddenly need it but not have it. Just a thought.
Getting your estate affairs in order, as the saying goes - has never seemed more important. Every day in the news we learn how fragile our lives really are, and we discover how life insurance can make a world of difference for your loved ones, and for your peace of mind. It’s bad enough knowing that the light you bring to your family will one day be extinguished, but the reality is - so will your earning power. You are, in fact, irreplaceable. As for your money and its ability to help your family carry on financially after you are gone, life insurance can help.
What exactly is insurance? The dictionary defines insurance as a practice or arrangement by which a company or government agency provides a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a premium.
Question #1: Why should I have life insurance?
There are no frivolous issues or questions for your financial advisor, however, your life insurance coverage is very high on the list, or at least it should be. Despite that, a recent survey of nationwide consumers shows only 65% of respondents had an active life insurance policy, and only 60% of those claimed they were “very familiar” with life insurance. A fair question is, what do I want this life insurance to accomplish?
Here are some things that can or may be included and to consider:
Life Insurance coverage remunerates a payment in the event of death or terminal illness. It may also pay off your mortgage loans and personal debts.
Expenses like living expenses for the family, funeral costs, and other future needs can also be covered.
Ensure that your family remains financially stable.
Income protection pays a monthly income stream, much like your salary or wages, if you become temporarily or permanently disabled.
Question #2: How much life insurance do I need?
I've always considered “need” to be a difficult word to assess. Maslow’s Hierarchy of Needs tried to set up a framework with five main levels of needs. These five levels begin from the most basic needs to the most advanced needs. My point is, how much you need depends on you. Generally, there will be a thin line between what you need and what you want.
Your financial advisor may ask you a range of questions and can suggest a calculation that will state the proper amount of coverage you will need. However, there are formulas out there for sure. They usually list:
These are the expenses your loved ones may have to cover soon after you pass away. Funeral costs and debts such as your mortgage, car loan, and credit cards may not be covered by cash on hand. How much would be the shortfall?
There will be ongoing expenses to cover after you are gone like food, housing, utilities, transportation, health care, clothing, insurance, and taxes. Without your income, what expenses will need to be covered over time?
These might include education costs for your kids. Private school, university, and maybe even an advanced degree. Caring for a special needs member of the family can be very costly. The cost of retirement or long term care facilities for a surviving spouse can be steep and should be factored into your Estate Plan and life insurance coverage.
It is important to underscore that online tutorials and web articles can sometimes help in the planning, but are no substitute for the advice from state-specific online Estate Planning services and financial advisors when it comes to making choices about how much life insurance coverage you need and want.
Question #3: How much does life insurance coverage cost and what can I afford?
There will likely be a range of insurance plans to choose from, and the costs will vary. The financial integrity of any insurance provider you are considering will be very important. Do your homework! A bargain is only a good deal if the company is a top-rated company and complies with state and federal guidelines in terms of how much cash they are required to have on hand to cover the obligations they’ve assumed in your policy. Insurance company bankruptcies in the United States have occurred, but infrequently, and State and Federal agencies have stepped in to mitigate policyholders. That said, there are company ratings available and your financial planner can lay out the risk for you with regard to specific companies.
For some, the cost of life insurance may seem like a bargain. For others, it might look like a high-cost expense. Before giving up, there may be ways to make it more affordable. Issues that can affect the premium costs may include:
The type of insurance
The amount of insurance
Your current health status
Policy features (riders)
Question #4: How much life insurance do I buy?
Life Insurance is a contract. The contracts may vary from company to company. The industry refers to them as products. Types of policies vary in policy types, features, and benefits available. There is the large print and the fine print. Here's what the coverage says and here’s what it really means. With the vast array of products and premiums varying in price from day to day and from one company to the next, it is wise to seek solid professional advice when deciding which policy is best for you and your family’s needs. Fiduciary advisors can be very helpful because life insurance agents are salespeople who sell policies, earn their commission and move on. Your best interests may be the last thing on their minds.
Seek out a fiduciary financial planner with experience and the knowledge of what’s out there in life insurance policies, and let them help you crunch the numbers and other variables. There are many options and insurance solutions that can meet your life insurance coverage needs. Policies can be amended and switched out over time - just another reason why expert assistance is the key to peace of mind and possibly your family’s future wellbeing. Preparing for your future and for your family’s future can turn out to be your final act of love for those you care most about. Having an Estate Plan in place sooner rather than later will afford you the peace of mind that comes with knowing your family will be protected even if you are no longer here.
At Trust & Will, we’re here to help you keep things simple. You can create a fully customizable, state-specific Estate Plan from the comfort of your own home in just 20 minutes. Take our free quiz to see where you should get started, or compare our different estate planning options today!
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