Life Insurance: Are you and your family covered?

I recently received a powerful story from a woman by the name of Stephanie. Her and her young family were trying to get on track financially and decided to read Smart Couples Finish Rich. In a short period of time, her husband was diagnosed with Lou Gehrig’s disease. She told me that his health failed at a considerable rate and he was immobile only 4 months after the onset. Two week’s after he passed away, she wrote to me an email thanking me for the advice to purchase life insurance. She said that although she was devastated, she was “financially ok” and could find a little peace knowing that her and her two boys could still live comfortably.

My entire team and I were so touched by Stephanie’s story and it reminded all of us why we do what we do: to help teach and inspire others to be smarter with their money for a more secure and rich future. And its because of her story that I am writing this blog post for all of you today; to make you stop and think… if something like this happened to you would you and your family be covered? Would you be able to find some peace?

When I was a financial adviser, I reviewed hundreds of my client’s insurance policies and for the most part what I have seen firsthand is that most people and most families are under insured.

The key to life insurance is figuring out if you need it, how much you need and the smartest way to buy it. Let’s get started…

MAKE SURE YOU REALLY NEED IT                       

In general, you don’t need life insurance if….

  • You are young, single, and don’t have any dependents.
  • You are not concerned about leaving money (an estate) to anyone.
  • You are not planning to have children and you don’t know if you will ever get married.

You do need life insurance if…

  • You have dependents.
  • You are married, owe a lot of money, and want to protect your spouse.
  • You have people or organizations you want to leave money to.
  • You have completely maxed out your retirement contributions and are looking for another tax-deferred way to save money.
  • You have a large estate and want to use insurance to reduce potential estate taxes.

IF YOU NEED IT, BE SURE TO SHOP AROUND:

THE 3 MAIN FACTORS TO CONSIDER WHEN YOURE DECIDING WHICH INSURER TO BUY YOUR POLICY FROM ARE:

1.  How stable is the company? To get an idea of how strong a company’s finances are and whether you can count on it to be around for the long haul, check with one of these firms that rate life insurers.

2. How well does the company take care of it’s policyholders? National Association of Insurance Commissioners maintains an online Consumer Information Source at www.naic.org/cis/, where you can look up the complaint record of virtually any insurance company in the country. 

3. How cheap are their rates? Once you’ve satisfied yourself on these two counts, you should look for the best price. The most efficient way to do this is through an online broker such as.


MAKE SURE TO BUY THE RIGHT AMOUNT

Life insurance is all about protecting your family against financial hardship in the event you pass away. So you need to base the size of your policy on one of two things: either what your potential earnings would have been if you hadn’t died or how much money your family will need in order to stay afloat after you’re gone.

The Life and Health Insurance Foundation for Education (LIFE), an industry-supported educational group, has two terrific calculators on its website that can help you figure this out: a “Human Life Value” calculator “Human Life Value” , which estimates what your lost earnings would be worth, and a “Life Insurance Needs” calculator “Life Insurance Needs”, which computes how much money your family is likely to need.

DON’T FORGET YOUR COMPANY BENEFITS

Many employers offer free life insurance coverage that can be worth as much if not more than your annual salary. So when you’re figuring how much insurance you need, don’t forget to factor in your workplace benefits. If you are young and healthy, however, do a comparison between your employer’s group rate and what it would cost you for an individual policy. Because a group policy covers both healthy and unhealthy workers alike, your company’s policy could end up being more expensive than an individual policy for a healthy person in the open market.

MAKE SURE YOUR EMPLOYER PLAN IS “PORTABLE”

The most important advice I can give you regarding a group employer policy is to make sure the plan is portable.  This means should you leave your employer, you can take the insurance policy with you (and fund it yourself).  The advantage is that you won’t have to re-qualify for the policy and you should be able to keep the group rate that you were paying—which can save you a ton of money.


YOUR LIFE INSURANCE ACTION STEPS

  • Check with your human resources department at work to see how much life insurance you currently have and what the premium is costing you, if anything.
  • Calculate how much money your dependents will need to pay your debts and replace our income after you die.
  • Request quotes online or work through a recommended agent.
  • Check a provider’s rating and customer service record.
  • Don’t forget to name your beneficiaries, and keep them up to date.
  • If you have a term policy, call your provider to request a lower premium that reflects today’s lower rates.

11 thoughts on “Life Insurance: Are you and your family covered?

  1. ? What is the difference between term life ins. and straight(I don’t know what the other type is) life ins.?

  2. David, really appreciate your work and am using the principles to alter my “late start” toward retirement. One thing I would advise caution on is selecting life insurance at the “best price” …. the agent, the company, the paid-up features, widow(er) and minor features, how the money is paid out and how quickly are all considerations. Will $12/mo mean much if company A keeps the claim tied up for months or years versus a fast checkbook in hand to immediately be able to cover expenses? The selection of the company is IMHO a most critical decision.. Keep up the great work.

  3. I totally agree with you! As an insurance agent myself, I hear the stories every day of how insurance kept someone from being emotionally AND financially devastated on the same day. I also have to be the one to tell someone their loved one let a policy lapse, or never did finish the application process. Life can change in a heartbeat, make sure you take care of your family!

  4. Greetings, David AND thanks for letting people know that they need to think about life insurance.

    I agree on every point you made, but want to offer a small suggestion about singles. While I agree that they don’t need a large life insurance policy, I DO think they need a small ($5,000-$10,000) permanent plan, maybe paid up in 10-20 years to take care of their funeral expenses. Since we don’t always generally know what the future holds — unexpected loss of job, change in health and insurability, etc. — at least they won’t be transferring their funeral funding needs to whomever is left behind.

    Just food for thought…

  5. I need life insurance because I have dependents. Should I buy term or whole life insurance and exactly how does it work? If I buy a $10,000 policy and only pay $2,000 into it, what do my dependents get? Thaks for your help.

  6. Very informative. I was hoping you would have touched on the difference between Term and Whole Life policies and which Is best.

  7. Thank you. Good info. I forgot to check whether my employer plan is portable.

  8. Examples of good companies for Life Insurance. Both my husband and myself have a portable insurance policy with Metlife with our employer. It was established with 3 times our salaries.

  9. I totally agree with you David on how Life Insurance is extremely important. However, I would disagree with the statements of people NOT needing it. Obviously in today’s world we tend to never plan on things i.e. to become sick or in other words uninsurable. One of the most important things to do first in securing a financial future is buying life insurance. As for deciding whether or not to buy term or whole depends on the individual. Personally, term insurance is my recommendation due to the cheaper cost compared to whole life as long as you have adequate coverage. Also, life insurance through work is never guaranteed to always be there. If you were to find another job, retire, or even the company cuts benefits life insurance is usually the first thing taken.

  10. A life insurance is certainly a type of coverage that you should have for your family. You may resent having to pay a monthly premium but at least you can be sure that your family’s financial security won’t be compromised in the event of your death.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>