I’m the first to admit that insurance companies and agents alike, in an attempt to provide numerous choices and options to simplify the life insurance buying process, have more often than not complicated life insurance. Its human nature really — if you put me in front of a vending machine with 60 options, many of which I’m unfamiliar with, I’m more likely to settle on something that I didn’t want as I just want the process over and done with!
Sadly, I’m not one with the gift of making complex things simple. So when I read a Forbes piece on simplifying life insurance, I wanted to share. I’ve compiled the list a bit down to 8.
Life Insurance is an important part of your financial planning.
This wasn’t actually one of Maurer’s original points if you read the article. But most don’t realize that when you consider your insurance, you’re doing financial planning. When you sit down with a certified financial planner, mitigating risk is an important part of the process. You simply can not plan for the future if your downside isn’t protected as it does you no good to save and grow your nest egg if it can be lost in one unforeseen incident. To put it into simple terms, life insurance protects those you love from the loss of your income. This flows directly into the next topic.
If anyone depends on your income financially, you need life insurance.
Everyone reading this sees (I hope…) the necessity of having life insurance for your spouse and children. But there are numerous other instances you may not have considered. One of the biggest gaps that I come across are parents that are on the hook for their children’s college debts. I see plenty of examples of six figure college debts. O_O Tim Maurer, the Forbes writer mentioned one that is many times missed, “if you are the child of a dependent parent, you need to up your life insurance. Meaning, if you have parents that depend on your or your income, you need to seriously think about insuring this need. Knowing that your parents are taken care of with dignity and care is a great peace of mind.
Life Insurance doesn’t just apply a monetary value to someone’s life.
You’ve often heard people say, “I’m worth more dead than alive?” This is only true in part. Life insurance provides peace of mind. I harp on this repeatedly, but GoFundMe IS NOT a replacement for life insurance! When a family has lost a loved one, the LAST thing they need to be worried about is money and whether or not they’re going to make it. The better question is how much peace of mind do you want your spouse or children to have?
There are only two types of life insurance: permanent and term.
That’s it. The problem is that there are numerous types of permanent life insurance. This is the one that gets people more often than not as they get lost in the “what type of permanent insurance is right for me” question. Term insurance allows you to carry a great deal of coverage for a specified period of time and usually for a much more affordable premium. Think of it as renting your coverage at a time in your life when you need lots of it. This is where a good broker (me) can be immensely helpful as there are numerous things to consider before you buy permanent insurance. Which leads to the next topic:
I suspect we don’t love talking about life insurance because we don’t like talking about death. No shocker there. But open and honest discussions about planning for an unexpected death can be surprisingly life-giving. And even if you don’t buy that, the chances are good that purchasing life insurance is still an important part of your long-term and comprehensive financial plan.” — Tim Maurer
You may or may not need permanent life insurance.
Be honest, when’s the last time you heard a life insurance agent say THAT? But it’s true. Not everyone needs or wants permanent life insurance. Don’t get me wrong; I own permanent insurance and recommend it in some cases. But it is not the magic bullet that insurance companies make it out to be. Even though I’m licensed in five states currently, my office is in Birmingham. B’ham as it turns out is a hotbed for whole life (one of the various types of permanent coverage and the one you’ve likely heard of) insurance sales. It’s almost an inside joke now about the mutual life insurance companies beating people up for permanent conversions. Think N’Western, NY, and Mass Mutual among others. There is a reason they push whole life as they make a ton of money off of it. Rather, I’m a big believer in the order in which your money should be saved. What I mean by that is, are you making enough of a 401 (k) contribution to get the match? Then, are you maxing out your IRA each year? If you’ve answered those two questions affirmatively and you still have some extra money and are looking for other tax efficient strategies for putting money away, then let’s have the permanent conversation. It’s all about taking advantage of tax deferral strategies and the order in which you do this is vitally important.
Life Insurance Can Be Incredibly Affordable
I’ve written +Million dollar policies for dentists with heart disease and other diseases that cost less than your cell phone bill. Obviously these were term policies. But unless you have some very significant health issues, you simply have no excuse for not having term life insurance.
Determining The Proper Amount of Coverage Doesn’t Have to be Difficult
The proper amount of coverage, like whether or not I need permanent insurance, is a sticking point with most people. The first thing to remember is life insurance is a replacement of your income. So how much of your income do you want your spouse and dependents to have? Most planners would agree that to just maintain your standard of living requires a replacement of 20 years of income. To do that, take your after-tax income, and divide that by .04. So for someone making $100k annually, you’re going to have a take home ~$100k X .38 (estimated federal and state tax) = $62,000. Divide by .04 and that should give you a sum of money close to $1.5 Million. That is the amount of money I would need to maintain your family’s standard of living. Or, you can take your annual income, multiply that by ~10-12, tack on your liabilities and most people will come within a hundred thousand or two from this amount. The sticking point for most is small thinking as many say, “I just don’t need that much.” My reply? Well you won’t but your family would!
Consider using an Independent Broker For Your Planning Needs.
And independent agent works for you whereas the agent works for his/her insurance company. The broker knows the best company based on your needs and expected underwriting. The agent sells you whatever their company has, regardless if it’s a good fit or not. People will many times ask the question, “can’t I just buy online?” The answer is certainly you can buy online but you have no knowledge that this is the best for you in terms of product, coverage or premium. Insurance companies are going to evaluate you (underwriting) based on your current, previous, and family health. You can be one pound over a height or weight requirement and pay an extra 25% in premium. I work with over 30 of the best, A-A+ life insurance providers in the industry. I know their underwriting requirements and am on a first name basis with many of their underwriters. I don’t fill out an application for coverage until I’ve spoke with the underwriter and have a reasonable expected outcome on premium. This all apart of the planning process. So do all your reading and education on-line. But when you’re ready to buy, it’s in your best interest to work with a professional. In many cases you’re going to keep the insurance for the rest of your life. Why not spend a little time on the front end of the buying process and make sure you get the very best?