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…
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 YOU’RE 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.