No one likes to think about their own mortality, so many investors avoid the conversation about their need for life insurance. However, life is full of “what ifs,” and those “what ifs” also change throughout the course of your life. The life insurance conversation should begin with, “What do you need to protect?” to help you determine your need.
Often investors will assume life insurance of two or three times your salary provided by your employer is enough. If you are a single, young adult and only responsible for your own financial well-being, life insurance may not be a priority. Group life insurance is nice to have as a no-cost benefit, and the coverage may be adequate for someone whose death would not create a financial hardship for others.
As you grow in your career and take on the personal responsibilities of a family and a home, the life insurance conversation should not end with group coverage. It may not be enough to truly replace a breadwinner’s lost income. If both spouses are wage earners and one were to die unexpectedly, it is unlikely that the surviving spouse would be able to keep up with household expenses and pay for child care with the remaining income. You should consider the income gap an unexpected death would create; what expenses need to be covered, and for how long. The amount of life insurance you need depends on a number of factors, including family size; current assets; immediate expenses, such as, burial costs and hospital bills; how much of your salary is devoted to current expenses and future needs; how much you want to leave for special situations, such as, funding your children’s education, and of course, how much insurance you can afford.
Fortunately, actuaries have researched life expectancies and insurers have been able to lower term premiums for many age ranges. Term life insurance coverage allows investors an opportunity to receive great coverage with a guaranteed premium and death benefit at a low cost. This type of coverage can get most families through the meaningful years when an unexpected death would fundamentally change a family’s financial future. By opting for a low cost term product, a family may also be able to supplement their protection with a disability policy. Most adults are more likely to suffer a disability than die, possibly becoming a drain on family finances with increased medical bills and a limited ability to earn a living.
With term policies, we highly recommend looking for a conversion privilege that will lock in a guaranteed low rate, but will also allow you to convert your policy to a permanent policy should something happen to you that would affect your future insurability. If you were to develop cancer within the 20 years your term policy is in place, a conversion privilege would allow you to convert to a permanent policy without having to go through the underwriting process again. The conversion privilege should not necessarily carry an added cost to the term policy; however, some companies severely restrict the future permanent policy options. We believe it is important to make sure to have a full and robust set of permanent policy options available to clients. We would advise clients to select term policies with companies that do not limit their permanent policy choices if ever needed in the future.
As you approach retirement, life insurance is less needed because mortgages may be lower or paid off and dependents have since left home to begin their own lives. At this point we again look to see what you need to protect. Most often this is your retirement assets that could be drained by a long-term care event. We look to repurpose what you’re paying in term life policies for long-term care coverage, or if you have a permanent policy that has a cash balance, we look for ways to optimize your coverage that would allow you to access that cash balance should you need it.
If you have questions regarding how life insurance fits into your comprehensive financial plan, the experts at Henssler Financial will be glad to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166.
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
