Life Insurance Blog
What is important to you in life? Who or what do you care about most? What would happen to them if you were not here anymore?
WHY LIFE INSURANCE?
Life insurance is a way to lessen the financial risk of a death. You can never be replaced as a person…but, your family, loved ones, or business partners that depend on you can cushion the loss of you by being more financially stable through that loss and beyond.
There are multiple other uses of life insurance, but this is the most basic and covers the need of financial stabilization for almost everyone.
THINGS TO CONSIDER WHEN APPLYING
Insurance companies are taking a risk that you may die within the policy terms covering your life. When you apply for life insurance, they want to know that their investment is appropriate to the premium payments being paid and for proper reasoning for you to purchase the policy for them to cover that risk. The company will want to make sure they know:
- Your health and family health history
- Height and weight
- Age
- Medications
- Tobacco usage
- Travel outside the country
Ultimately, this is an investment for them too.
TYPES OF LIFE INSURANCE
There are two types of insurance that can be considered.
The most popular and cost efficient is term.
This covers a specific number of years. Usually in 5-year increments.
The other type is permanent.
This lasts your entire life and usually include a cash value component that can be useful while you are still alive.
Permanent life insurance is more expensive because you are guaranteed to die, and a payout will happen. These policies can be more flexible with death benefits, premium payments, and the ability to track potential market growth.
DETERMINING COVERAGE
You will need to figure out the expenses or debts you need to cover now and/or in the future. The most common needs for coverage are funeral costs, lost income, mortgage, education, funding retirement, and estate planning.
There are all kinds of multipliers that people use for how to project the coverage based on your salary, but that question will ultimately be answered by you and those depending on you. Talk this over with your loved ones and a professional what you would want for them if you weren’t around.
At BMG Advisors, we typically start with 20x salary minus net worth. This would provide a steady stream to cover your salary with a conservative 5% rate of return for perpetuity. That can be a lot of coverage so that is why it is important for someone giving advice to know as much of the full picture as possible so they can make a suitable recommendation.
For people we help, we also check multiple different carriers for the best fit.
If you are looking to get life insurance, first check with your employer. Some companies offer group policies that are very inexpensive and may not take in as much health consideration since they cover an entire group instead of an individual.
It that is or is not an option, the next step would be to speak with a life insurance company or financial advisor that offers life insurance.