Know Your Need – L.I.F.E Insurance
The somewhat emotional angst of simply hearing the words, life insurance, can be daunting to a vast number of us. While there are certain stigmas associated with this type of insurance, many do not understand the true importance or value that this can offer someone at any stage of their life. Often as a result, they neglect seeking more information. Whether it is the belief of not needing the coverage or the frequently misconceived affordability, there is a life insurance solution for everyone. It is crucial to speak with a professional to help you determine the type of coverage that is most suitable, but the following is some basic information to help guide you.
By using a simple acronym called, L.I.F.E., you can better evaluate and confirm an objective dollar amount of coverage tailored to your need. This should be your first step in your life insurance journey.
L. liabilities/debts. This is inclusive of any and all debts like a mortgage, car loan, personal loan, credit card, etc.
I. income. This factor takes your monthly or annual income into account, which is then multiplied by a number that represents years to come. The number by which your income is to be multiplied equals the numbers of years you believe is necessary for your family to continue living at the same standard. A common multiplier is 10.
F. final expenses. Typically, these end of life expenses can be assumed to fall between $10-$50K.
E. education. This final component refers to an amount required to pay for future educational expenses for children or grandchildren. As we know, prices for education continue to rise and this can help alleviate the burden of student loan debt.
After calculating your need using this method or some variance, it is vital to educate yourself on the types of coverages available. These coverage categories are referred to as term, universal, or whole and can be broken down as follows.
Term: Term life insurance is typically the most affordable based on age and health condition and provides coverage for a set period like 10, 20, or 30 years. Choosing your set period is normally based on age and can provide a tax-free inheritance to your family that will help cover expenses upon your passing. Medical qualification is required in most cases, however, some providers offer limited policies that do not require an examination.
Universal/Whole: Universal and whole life insurance act very similarly in their function of providing permanent coverage for the remainder of your life while simultaneously building cash value when structured properly. This means that a portion of every contribution is granted a fixed interest rate percentage, affixed to an index like the S&P 500, or even attached to specific mutual fund of your choosing that can accumulate value to help serve as a tax-free retirement supplement or used for anything else seen fit. Like term coverage, this too, requires medical qualification, but exam-free policies may be available.
The application process is generally straightforward and consists of basic applicant information along with a personal and medical history questionnaire followed by a paramedical examination conducted by a third party. A key point to keep in mind is that prior to selecting the product type, an application and medical qualification should be submitted and approved to ensure insurability. During this initial underwriting period, it is up to you to determine a reasonable contribution budget that will be used to help your agent structure your coverage. Depending on age, health, information turnaround time, and product selection, the processing time can vary, but it is imperative to not assume disqualification simply based on age.
Regardless of your individual situation, it is encouraged to sit down with a life insurance specialist to discuss options, which should be offered at no cost. Remember, it is your life, your legacy, and your family will thank you for years to come.
Article by Lukas Perry
Farmers Insurance and Financial Services – Lukas Perry Agency
1630 Welton St. ste 722 Denver, CO 80202