Answering a few Life Insurance Questions

How much Life Insurance do I need & what kind should I get?

Life insurance is a topic that is often overlooked during the financial planning process. This is often because life insurance does not typically appreciate like an investment in the stock market. Rather, it is a static line item in your financial plan that requires a static premium to be paid over the course of many years. We find that many people don't have life insurance for a variety of reasons: Life insurance options are confusing,  considering life insurance can be an unsettling topic for many, and it can be a budget item we would rather not pay for. Unfortunately, as with any form of insurance – you never think you need it until you really do. In the financial planning world, there is no more responsible decision than purchasing a life insurance policy that insures the financial security of your loved ones.

So, how do we as determine the amount of life insurance coverage our clients need? We use a tool called a “Human Life Value Analysis”. While this sounds scary, this analysis simply seeks to give us a dollar amount for the death benefit that will cover an individual’s need. We look at the following items:

• How many dollars are required to replace 10 years’ worth of an individual’s earnings?
  • For ex. – An individual who earns $100k per year would require $1 million of life insurance coverage.
• How many dollars are required to pay off all current debts?
  • For ex. – An individual who owes $200k on their home and $50k in student loans would require an additional $250k of insurance coverage.
• How many dollars are required to fund future financial goals?
  • For ex. – An individual with 2 children would like to provide $50k for each child’s future education, this would require an additional $100k of insurance coverage.

As with all analysis there is no one-size- fits-all approach. We customize the appropriate amount of life insurance coverage for each individual's plan and ability to pay for this coverage. Over the years we have run into a couple of common reason for not wanting to purchase life insurance:

• I cannot afford to pay the premium for all the life insurance coverage I need.
  • Response – Totally understand and encourage being fiscally responsible with your monthly cash flow. That being said, some life insurance coverage is better than no coverage. Let us find out how much insurance coverage you can reasonably afford.
• Someone once sold me a whole life insurance or universal life insurance policy as a solution for all my financial needs and I do not want to go down that road again.
  • Response – This situation has unfortunately happened to many people over the years. As was mentioned above, no one insurance product is right for all situations. We would urge caution if a sales person tells you that a certain product can work for anyone.  We have found, however, that as part of a well constructed financial plan, the correct life insurance product can be used to meet your need and possibly help achieve other financial goals as well.

Over the years we have seen lives drastically altered by the decision to purchase or not purchase life insurance. Take time to consider if you have appropriately insured the financial needs in your life. If you are not certain, then I strongly encourage you to reach out to a trusted advisor to determine your next steps with life insurance.