Life insurance serves as one of the most important pillars to sensible financial planning. Yet securing a policy is not a task many people tackle proactively. While life insurance is universally essential, there seems to be confusion and skepticism due to its unique complexities. Plus, the process of obtaining life insurance is lengthy. There can sometimes be an aura of morbidity around the subject that people tend to want to avoid. But life insurance is important as you plan for the unexpected.
The fact is that death is a part of life, and planning for your absence does not need to be a melancholy experience. In fact, life insurance can provide a valuable peace of mind for the policyholder. It is deserving of consideration (at the very least) in every household and getting a policy implemented is absolutely one of the best things that you can do to ensure that your loved ones are taken care of after you’re gone.
WHERE TO BEGIN?
First of all, if you are the breadwinner of your family then having some form of life insurance in place is virtually mandatory. However, life insurance is not something that everybody benefits from. We strongly recommend consulting a financial advisor or a trusted insurance agent to find out exactly what your needs are before you get started. Life insurance is an investment that stays with you for years, so you do not want to get yourself into a pickle by committing to a policy that ultimately does not serve your interests.
Once you have consulted a professional, if you are deemed an appropriate candidate for universal life insurance, then the sooner you get the ball rolling, the better. Life insurance becomes progressively more expensive as you age, so waiting to buy into a policy could become more of a financial burden for you over time.
It is imperative to arm yourself with proper information before you dive into the process of acquiring life insurance. There is a lot to consider before choosing your policy and we want you to be confident in the choices that you make for yourself and for your family.
HOW MUCH INSURANCE DO YOU NEED?
This is a question with many possible answers. To help you evaluate your necessary coverage amount, we have created what we call the L.I.F.E analysis:
L – Loans
I – Income
F – Final Expenses
E – Education
It is strongly advised to take each of these L.I.F.E. components into consideration when deciding on the extent of your comprehensive life insurance plan.
LOANS
Let’s start with loans. Do you have a mortgage? Student loans? An auto loan perhaps? Maybe you’ve racked up a robust balance on a credit card or two? No judgement here, most of us carry around debt in one form or another. But if you died tomorrow, your estate (your assets owned at time of death), would need to cover your outstanding debt, and your heirs would have to manage that situation. In Ohio, creditors have up to six months after your passing to file a claim against your estate, and anything paid would reduce any inheritance you had hoped to leave to your loved ones.
Generally, it is your next of kin that takes on the burden of dealing with creditors in addition to managing the hardship of loss. And what happens if you have more than one “next of kin” family member? How do they decide what portions of the estate or inheritance covers the debt? To avoid a probate court room drama, make sure that your life insurance covers any personal liabilities that you may have so your debt doesn’t end up creating a burden, financial or otherwise, for your loved ones.
This goes for any business liabilities that you may have as well. Do you know what would happen to your business in the event of an untimely death? Do you have a succession plan? It is important to determine who inherits the business-its assets and its liabilities-and to guarantee that you have adequate coverage provided by your life insurance policy so any outstanding business debt can be absolved.
INCOME
Your life insurance should not only cover outstanding debt that you leave behind, it should also be able to sustain your family’s expenses long term. If you have anybody relying on your income for their financial well-being (this includes a spouse, children, parents, etc.), do them a solid and set them up for financial strength in the event of your absence.
Ideally, we recommend having enough coverage for five to ten years of income replacement. For example, if you make $200k annually, your policy should provide your loved ones $1-$2 million after your death. This conservative strategy will help offset the inevitable financial consequences.
FINAL EXPENSES
Admittedly, final expenses is morbid territory, but it is crucial in deciding on your life insurance policy’s value. In the aftermath of an unexpected death, the last thing that your surviving family members want to be dealing with is a financial complication arising from the costs accrued by your burial. Average burial costs can range anywhere from $5k-$10k+. Having a life insurance policy that covers these substantial, untimely costs will safeguard your family’s financial security at a time when they will need it the most.
EDUCATION
If you plan to paying for your children’s tuition, it is wise to factor those costs into your life insurance policy. It is no secret that continuing education after high school is incredibly pricey. With the loss of income that your family will experience in your absence, higher education may become out of reach. Having life insurance coverage pertaining to education will provide your family with the funds necessary to afford schooling. This will not only relieve fiscal stress; it will also protect your children’s opportunities for achieving future success.
SHOULD YOU BUY YOUR POLICY THROUGH YOUR EMPLOYER?
Companies often offer life insurance in their benefits package, which can be quite enticing. A major benefit to purchasing life insurance through work is convenience. And if the expense is a concern, a standard plan through your company may come at no cost to you.
However, the standard life insurance policy offered through most companies typically does not provide enough coverage to replace a loss of income. According to a NerdWallet study, typical group policy coverage amounts range from $25k-$50k. Alternatively, they will cover the cost of an employee’s annual salary for one year. Keeping the L.I.F.E analysis in mind, it is safe to say that while your job may offer an effortless, low-cost insurance plan, this plan alone will not be sufficient to financially protected your loved ones in the event of your death.
The good news is you always have options. You do not have to choose between an employer’s group life insurance policy and an individual policy. To work around job-offered life insurance inadequacies, you can supplement any remaining necessary coverage with an individual plan.
Something to keep in mind is that if you do decide to purchase life insurance through your employer, the coverage will not follow you. You will find yourself either completely uninsured or under-insured (if you invested in a supplemental individual policy) if you leave the company. The value of securing life insurance through an individual insurance provider is peace of mind knowing that the coverage will follow you throughout the whole term of the policy or possibly throughout the whole term of your life.
NOW IS THE BEST TIME TO BUY
I know we’re all sick and tired of talking about the coronavirus, but with the extraordinarily high infection and mortality risk that the virus poses, now is the best time to buy life insurance. And BONUS – that aforementioned lengthy process to obtain life insurance has now been made obsolete.
On a regular day, your life insurance application would most likely include medical tests. The time-frame for which you would acquire your coverage would be hinging on document filing efficiencies. Now however, insurers are waiving medical tests in lieu of video interactions and issuing policies quicker than ever before.
An added advantage to purchasing life insurance today is that you are able to avail tax deductions under Section 80c of the Income Tax Act for premium payments made before June 30,2020. Who doesn’t love a good tax break?
Wearing a mask and washing your hands aren’t the only way to protect yourself and your family from this pandemic. Take advantage of your newfound time. Spring into action and purchase a life insurance plan that will provide your loved ones the security they need.
Life insurance shouldn’t be thought of as a mortality reminder, or a concept used to apply a monetary value to your life. It is the key to a sound financial plan. It will safeguard your family long-term when your time is up and the stability that you provide is lost. Be proactive and purchase your life insurance policy today. Camargo Insurance will be there for you every step of the way.
How We Can Help
For a more in-depth look at the nuances of Life Insurance – like what is Whole Life versus Term Life Insurance? And what factors can affect your Life Insurance premium? Stayed tuned to Camargo Flow BLOG – we have more info to come! In the mean-time, if you are ready to chat about your options and what is right for your family – check more information on life insurance and contact Camargo Insurance.