Know Your Amount of Life Insurance
A question that people rarely consider is if they have the correct amount of life insurance. This question is definitely subjective to interpretation but there are 3 immediate cash needs most people would agree on. First is final expense. What will it cost for burial expenses and final expected administration expenses such as probate and legal fees to transfer ownership of property? Second are mortgage balances and other outstanding debts such as credit cards or lines of credit. When people get a mortgage it is public information and marketing companies will mail out letters talking about taking out an insurance policy to pay off the mortgage in the event of death. What most people do not realize is that “mortgage protection” is just a life insurance policy for the amount of their loan. Think about it, you die it pays the beneficiary money to pay off the mortgage. It is packaged around “mortgage protection” in order to usually sell an overpriced life insurance policy and is often times put in force without taking a medical exam. People are usually better off proving their insurability by doing a medical exam and purchasing a low cost level term life insurance policy. Third is a college fund for the kid/s. 99% of people I speak with envision their children going to college because they feel it will position their kid/s to become more successful financially and socially. Unfortunately, when that day comes, most parents do not have the cash set aside and are planning on paying for college out of their earned income. In order for people to address their immediate life insurance needs they should combine final expense, outstanding debt, future college expense for their kid/s, and come up with the total amount of life insurance they would need to cover these liabilities.
Then there is the topic of the ongoing need to provide income. Typically if the immediate needs are solved, the family can live on 65% of deceased’s income. So if a person makes $100,000 per year, the family could survive on an income stream of $65,000. When I meet with people to discuss the topic of life insurance they say things like, “Well, she/he can find someone to remarry”, “It is not my problem anymore because I will be dead”. My opinion and hope is that people jokingly say these things because they are in the moment and talking about a topic that is uncomfortable but in their hearts they really do care about the future of their families. My first manager in the business used to always tell me when he delivered death claims, “there has never been anybody who told me the life insurance check was too much”.
My recommendation is to meet with an expert life insurance producer who understands the importance of completing a life insurance needs calculator. People should establish a death benefit that combines the immediate need for life insurance with the ongoing life need. Once the final amount of life insurance a family or individual needs has been determined and agreed upon by all parties, people should take out one policy instead of having multiple policies. If people are looking to buy permanent life insurance and cannot afford to purchase all of it at one time, they should do a blend of permanent and term life insurance that fits within their budget but getting the correct amount of life insurance protection in place is the most important piece of the equation.
If you need help discussing your need for life insurance, you can contact me directly at carter@pacificinsurancegroup.com or 425-246-4222.