As we approach Life Insurance Awareness Month in September (Yes, and only financial geeks like me know that September is LI Awareness Month), I thought I would provide some framework for you to re-think or examine your own life insurance plans.
Life Insurance can be confusing. Not to mention the pressure of an agent trying to get you to make a purchase…… any purchase. So, as you consider your own life insurance plan here are 5 questions that you should ask regarding yourself regarding your personal policy. If these questions can’t be answered or aren’t answered satisfactorily then you should consult an experienced financial planner to ensure that your plan is a fit for your family and your personal situation.
1) Do I have the right amount of coverage?
We believe that each person should have their Full Economic Value in life insurance Death Benefit. The calculation to determine your Economic Value is:
Your Annual Income X # of working years remaining = Your Economic Value
This may vary as you approach retirement. At retirement point the death benefit should equal your estate size. Other planning caveats are for non-working spouses (all spouses work however all do not receive an outside paycheck for their hard work). In this scenario, consider the cost to hire someone to perform the duties they perform as the appropriate amount.
2) Will my insurance expire without value?
Some types of coverage like term coverage are designed to end without value regardless of whether the insured is still alive. Other types can lose value and leave a large surprise to the insured when they realize that they have paid in to a plan that is being canceled or needs unexpected additional funding.
3) Is my life insurance coordinated with my retirement plan?
This one can get tricky. In order to receive the highest amount of retirement income it is wise to create a coordinated retirement and life insurance plan. This coordination will allow for income to be received with the best possible tax treatment without fear of running out of money during retirement. This level of coordination is best designed with your financial planner who is well versed in retirement and insurance planning.
4) Does my life insurance have a clause for Disability?
Many insurance agents often overlook this feature in their zeal to make a sale. An educated consumer will always want a life insurance plan that protects them from disability. This means that if the insured were to become sick, hurt or unable to work the insurance premiums would be made on their behalf by the insurance company. This isn’t a reason to not own proper disability insurance, but simply helps to make sure that life insurance premiums do not have to cut due to the loss of income or additional expenses of a disability.
5) Does my life insurance have living benefits? Specifically benefits like Long Term Care or Chronic Illness benefits.
These are features within life insurance policies are newer to the market place and all companies have not adopted them at this point. However, I personally wouldn’t recommend a policy without them in today’s market place. Including these benefits can often times be added with little or no additional premium and potentially save big money down the road. It is often advisable to choose multiple policies with and without this feature due to how they are treated when/if they are ever utilized for this purpose. This feature can be added to many term or permanent policies.
Hopefully these questions have provided the framework for you to begin examining your own life insurance strategy. As you can see life insurance is an integral part of any financial plan. It is advisable to work with a professional to determine the appropriate approach for you and your family. Be careful when talking to an insurance agent who only works for one company or doesn’t specialize in coordinating this with a financial plan. They may be limited by the choices which they can offer.
If we can help with this conversation or if you simply want to learn more about Drive Planning connect with us on-line or in person.