“We insure against what can go wrong in order to acquire the luxury of investing for what can go right!” Nick Murray

Nobody likes talking about death, disability, or the bad things that can happen in life. But, that does not mean they aren’t important to consider.

Last week, we talked about Retirement planning and the importance of looking beyond today…into the distant future. Insurance planning is similar. To measure our need for insurance, we have to imagine what life would look like under abnormal circumstances. Unlike retirement, these circumstances are not fun to think about so we tend to put this off.

Step 4 – Insurance

First, a quick education. We are only going to cover life and disability insurance in this post. This is most often where we see the biggest gaps in coverage.

Life Insurance – This policy covers your death. If you die, the policy value is paid to the beneficiary of the policy. If you are an employee, your employer may provide a small amount of life insurance, but it is rarely enough.

Disability Insurance –  This policy pays you if you become injured and can’t earn your income. Traditionally, companies provide this up to 60% of your income. This isn’t always the case and, often times, is not enough to fully protect you.

There are 3 key questions to consider:

#1 – What is the goal of these policies? 

To protect your loved ones if something happens to you! For almost everyone, that’s it. I’ve never met someone who did not want to take care of their loved ones. Ironically, the vast majority of Americans are under insured.

#2 – How much do I need?

As is the case with most things in life, there isn’t a black and white answer that applies to everyone. Each person / family must decide the level of protection they want to provide. The answer also depends on your age and how much you have saved elsewhere. Let’s look at an example…

Bob and Susan are 55 years old. They want to retire in 10 years and have accumulated $1M in retirement accounts. Bob works and makes $250,000 / year. Susan does not work. They have one life insurance policy on Bob worth $500,000. The only disability insurance they have is through Bob’s company worth 60% of his income. If Bob dies or becomes disabled, Susan doesn’t want to go back to work.

  • Life insurance – if Bob prematurely dies, their $1M of assets plus their $500,000 insurance policy will likely not last for the rest of Susan’s life (at their current standard of living). They could use another $1M – $2M of 10 year term life insurance to bridge the gap.
  • Disability insurance – 60% of $250,000 may sound like a healthy income, but that income is taxed. The net take home number (after taxes) is closer to 45% of Bob’s income.  Bob and Susan would have to live on less than 1/2 of their normal income which would be a major adjustment. We might suggest they purchase additional disability insurance to replace more of Bob’s income if he became disabled.

Of course, many variables could change the outcome of this example…What if Susan works full time and also makes $250,000? What if Bob and Susan have accumulated $3M in their retirement accounts. Each situation is different and we love helping families navigate this decision.

#3 – Where to purchase life or disability insurance? 

We believe in “shopping” these policies to get the best rate from the best company. We are licensed to sell insurance and work with an independent insurance agency to make sure we get the best rates. Or, you can go online and get quotes from Select Quote or Zander Insurance.

Insurance planning is something nobody wants to do but they are so happy they did when they need it most! Do some research, call us, or contact your trusted insurance agent…take action!

Next week: Estate Planning

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